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Discuss the capital, voyage and operating costs of ship operation and explain Chief Engineer’s role in optimizing them

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  • Discuss the capital, voyage and operating costs of ship operation and explain Chief Engineer’s role in optimizing them

    Discuss the capital, voyage and operating costs of ship operation and explain Chief Engineer’s role in optimizing them
    Last edited by mohit; 12-21-2017, 12:06 PM.

  • #2
    CAPITAL COST: It depends on mainly two things.

    1. First is How the ship is financed. If financed by loan, then it will depend on

    • Size of loan

    • Source of loan

    • Interest rate

    • Terms of loan

    Final price of the ship will be;

    Final Price= Cash price + Interests = Cash price+ n*Installments

    2. Second capital cost is Depreciation

    Deprecation refers to two very different but related concepts.

    • First is decline in value of assets and

    • Second is allocation of the cost of tangible assets to periods in which the assets are used.

    Depreciation cost depends on

    • Cost of asset

    • Expected salvage value of asset

    • Estimated useful life of asset

    • A method of apportioning the cost over such life

    OPERATING COST:

    1. Crew Cost:

    Crew cost includes direct and indirect costs.

    Direct cost includes

    • Wage cost

    • Travel cost

    • On Board victualing

    • Training

    • Union fee

    Indirect cost includes

    • Recruitment/Selection of process

    • Medical test

    • Social dues

    • Communication/ Bank charges

    • Crew accident insurance payment

    • Sick pay

    • Port expenses

    • Agency fee

    Total crew cost depends on

    • Size of crew

    • Employment policy of owner/ Operator

    • Ships flag

    2. Repair And Maintenance:

    It consists of

    • Routine maintenance: Maintenance of engine and equipment, Painting etc

    • Breakdowns: Mechanical failures resolved in repair yards (Loss of trading time) Spares, replacement parts cost

    • Periodic Maintenance: In repair yards/ Drydock to maintain seaworthiness (Class) and obtain certification (for insurance). Regular maintenance leads to fewer

    breakdowns. This cost increases with ships age and in average accumulates for 14% of operating cost.


    3. Insurance:

    It varies from ship to ship. This we know in details

    • 2/3 H&M (obtained from Marine insurance company)

    • 1/3 Third party liability (Obtained from P&I club)

    4. Administration

    Shore based administration and management charges

    Communication cost

    Agents in ports

    Flag state fee

    VOYAGE COST:

    1. Fuel Cost

    It depends on

    • Fuel Price

    • Engine Power and efficiency

    o Only 23% of energy consumed is applied to propelling the vessel. Rest is lost for cooling the engine, lost as exhaust emission, lost at the propeller & Hull friction.

    • Design and state of Hull

    • Ships speed

    2. Port charges:

    Fees for the use of facilities and services provided by the port.

    a) Port dues
    • General use of port facilities. It depends on
    • Volume of cargo
    • the weight of cargo
    • Gross Tonnage
    • Net Tonnage
    b) Service charges include
    • Pilotage
    • Towage
    • Cargo handling
    3. Canal Charges

    a) Suez canal: Charges

    b) Panama canal: Flat rate per Panama Canal net ton is used.

    Chief engineer role of optimizing the costs incurred in a ship operation plays an important role in reducing the Operating cost by maintaining the engine efficiency and

    maintenance of all equipment so that there is no trading time loss.


    He can also optimize the voyage cost by running the engines at economical speed. A lot of costs can be saved by optimal utilization of spares by keeping a good

    inventory management scheme In place and use spares when required while keeping in mind not to compromise the safety of the ship and its crew. This being done, he

    should also keep an up to date list of all critical spares.


    CAPITAL COST: It depends on mainly two things.

    1. First is How the ship is financed. If financed by loan, then it will depend on

    • Size of loan

    • Source of loan

    • Interest rate

    • Terms of loan

    Final price of the ship will be;

    Final Price= Cash price + Interests = Cash price+ n*Installments

    2. Second capital cost is Depreciation

    Deprecation refers to two very different but related concepts.

    • First is decline in value of assets and

    • Second is allocation of the cost of tangible assets to periods in which the assets are used.

    Depreciation cost depends on

    • Cost of asset

    • Expecte

    d salvage value of asset


    • Estimated useful life of asset

    • A method of apportioning the cost over such life

    OPERATING COST:

    1. Crew Cost:

    Crew cost includes direct and indirect costs.

    Direct cost includes

    • Wage cost

    • Travel cost

    • On Board victualing

    • Training

    • Union fee

    Indirect cost includes

    • Recruitment/Selection of process

    • Medical test

    • Social dues

    • Communication/ Bank charges

    • Crew accident insurance payment

    • Sick pay

    • Port expenses

    • Agency fee

    Total crew cost depends on

    • Size of crew

    • Employment policy of owner/ Operator

    • Ships flag

    2. Repair And Maintenance:

    It consists of

    • Routine maintenance: Maintenance of engine and equipment, Painting etc

    • Breakdowns: Mechanical failures resolved in repair yards (Loss of trading time) Spares, replacement parts cost

    • Periodic Maintenance: In repair yards/ Drydock to maintain seaworthiness (Class) and obtain certification (for insurance). Regular maintenance leads to fewer

    breakdowns. This cost increases with ships age and in average accumulates for 14% of operating cost.


    3. Insurance:

    It varies from ship to ship. This we know in details

    • 2/3 H&M (obtained from Marine insurance company)

    • 1/3 Third party liability (Obtained from P&I club)

    4. Administration

    Shore based administration and management charges

    Communication cost

    Agents in ports

    Flag state fee

    VOYAGE COST:

    1. Fuel Cost

    It depends on

    • Fuel Price

    • Engine Power and efficiency

    o Only 23% of energy consumed is applied to propelling the vessel. Rest is lost for cooling the engine, lost as exhaust emission, lost at the propeller & Hull friction.

    • Design and state of Hull

    • Ships speed

    2. Port charges:

    Fees for the use of facilities and services provided by the port.

    a) Port dues
    • General use of port facilities. It depends on
    • Volume of cargo
    • the weight of cargo
    • Gross Tonnage
    • Net Tonnage
    b) Service charges include
    • Pilotage
    • Towage
    • Cargo handling
    3. Canal Charges

    a) Suez canal: Charges

    b) Panama canal: Flat rate per Panama Canal net ton is used.

    Chief engineer role of optimizing the costs incurred in a ship operation plays an important role in reducing the Operating cost by maintaining the engine efficiency and

    maintenance of all equipment so that there is no trading time loss.


    He can also optimize the voyage cost by running the engines at economical speed. A lot of costs can be saved by optimal utilization of spares by keeping a good

    inventory management scheme In place and use spares when required while keeping in mind not to compromise the safety of the ship and its crew. This being done, he

    also keep an up to date list of all critical spares.


    Last edited by deepak; 12-21-2017, 12:18 PM.

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