How much does it cost to run a container ship, like upkeep, maintenance, insurance, etc.? Is it true it’s not profitable?
| Photo: Christian Charisius/AP/Ritzau Scanpix
Complexity and scale of operations. These expenses can be broadly categorized into operating costs and capital costs. Let’s break these down:
Operating Costs
- Fuel Costs: This is one of the largest expenses for a container ship, fluctuating based on fuel prices and the ship’s efficiency.
- Crew Salaries: Includes wages for all onboard staff, from the captain to the deckhands.
- Maintenance and Repairs: Regular upkeep and unforeseen repairs to keep the ship in compliance with international safety standards.
- Insurance: Shipping companies must insure their vessels against accidents, piracy, and natural disasters.
- Port Fees: Costs for docking at ports, which can vary widely depending on the port.
- Canal and Passage Fees: Fees for using canals (e.g., Panama Canal) and certain sea routes to shorten travel time.
- Running a container ship involves various costs, which can be substantial due to the Provisions and Supplies: Food, water, and other necessities for the crew during voyages.
Capital Costs
How much does a ship cost? New container ship prices are nearing an all-time high. Container lines continue to order new container ships even though prices are rising and demand is falling.
According to Alphaliner, factors such as full shipyards, rising inflation and specific requirements for ship construction are driving up the price.
Although the pace of new ship orders is slowing down, several carriers are still negotiating for new container ships.
This is happening even though prices at shipyards are at near all-time highs and the market is struggling to deliver enough cargo for the many new vessels that are already on their way to the market, writes analyst firm Alphaliner.
The total order book for container ships has never been bigger and currently stands at almost 8 million teu. But shipping companies are still eager to place orders, especially for so-called dual-fuel vessels, which can run on alternative fuels such as methanol and LNG alongside traditional fuel oil.
Factors such as full shipyards, rising inflation and specific requirements for the construction of ships are driving up the price.
”Nevertheless, most carriers’ well-filled war chests, and the need to modernize the fleet and lower the industry’s overall carbon footprint have combined to push owners toward ordering,” the analyst firm writes.
”Admittedly, modern vessel designs are not directly comparable to similar-capacity ships of yesteryear, but even among recent modern high-spec tonnage, the price increase has been staggering.”
As an example, Alphaliner highlights the prices of a conventional neo-panamax ship of 15,000 teu, which in China can be ordered for USD 150m and in South Korea for USD 160m.
If they need to run on methanol or LNG, they cost up to 20% and 25% more, compared to 15% and 25% previously.
”The increased premium for methanol is mainly demand driven, since many carriers have followed Maersk’s lead to choose this fuel as an alternative bunker,” Alphaliner notes. The ordered vessels will be delivered as far ahead as 2028, but the majority are expected to hit the water in the years leading up to 2025 and thus during a period when the container market seems to be struggling with lower demand.
Depreciation: The cost of the ship spread out over its useful life, reflecting the decline in value over time.
Finance Costs: Interest on any loans taken out to purchase the ship.
Profitability
The profitability of running a container ship can vary widely based on several factors:
- Freight Rates: The amount a shipping company charges for transporting cargo. These rates can fluctuate dramatically based on supply and demand, affecting profitability.
- Operational Efficiency: Fuel efficiency, effective route management, and minimizing time in port can significantly impact costs.
- Global Economic Conditions: The demand for shipping is closely tied to the global economy. Economic downturns can lead to overcapacity and lower freight rates, squeezing profit margins.
Despite the high costs, container shipping can be profitable. The industry tends to be cyclical, with periods of high profitability followed by downturns when overcapacity and low freight rates prevail. Efficiency improvements, scale economies from larger ships, and strategic alliances among shipping companies are some strategies used to enhance profitability.
It’s not accurate to say the industry isn’t profitable as a blanket statement; however, profitability can be highly variable and depends on a company’s ability to manage its costs and adapt to changing market conditions.
