The Baltic Exchange is helping shipping investors with their financial modelling, allowing them to calculate Net Present Value (NPV) more accurately than ever before with a new index. The quarterly Operating Expense Index (BOPEX) is based on assessments made by a panel of some of the industry’s biggest and best third-party ship managers. BOPEX provides much needed transparency when tracking vessel running costs.
Using the full suite of independent Baltic Exchange indices, investors are now able to benchmark daily vessel earnings, running costs, sale & purchase and recycling prices. The same vessel descriptions are used across the datasets.
For the dry market, BOPEX-D covers capesize, panamax, supramax and handysize vessel types. The Baltic is also currently in the process of developing a set of tanker and gas carrier assessments which are expected to be launched in the next months. These will complement the existing dirty, clean, LNG and LPG freight indices.
Third-party managers key
According to Baltic Exchange member Philip Bacon, a highly experienced ex-operations director at dry bulk owner AM Nomikos who led the project to set up the new index, the role of third-party managers is critical to its success: it sets BOPEX apart from other assessments.
“This is a current and realistic assessment made by people who quote ‘OpEx Budgets’ for owners’ business on a daily basis. It’s not a backward-looking assessment or an assessment by the owner’s accounts department: everything is included.”
Around 15% of the dry bulk fleet is estimated to be managed by third-party managers and the three managers which currently make the assessments (Anglo-Eastern, Columbia Shipmanagement and Fleet Management) collectively provide technical management services to a fleet of around 600 bulk carriers. They also manage a broad range of other vessel types which adds context to their assessments.
The fact that the index is audited by the Baltic Exchange and falls under its strict criteria for benchmark production adds further credibility to the figures.
Ajay Hazari, Chief Risk Officer at Anglo-Eastern, says that a team of four at the company contribute to BOPEX-D. He reveals that for Anglo-Eastern, benchmarking itself against its peers was an important reason to become part of the panel. He also notes that becoming a member of the panel is good for the company’s exposure to the investment community.
He says: “We hope that people using the index will ultimately approach us for our management services.”
Panellist Vikras Greval, head of Fleet Management’s business development division, shares FLEET’s reason to join the benchmarking exercise:
“There are a couple of existing OpEx benchmarking platforms that FLEET contributes to. What made this new project particularly interesting is that it would be the first platform to provide our existing and prospective clients with a complete ship lifecycle cost – sale & purchase, freight and OpEx. And that’s a real value add.” he comments.
Making an assessment
Of course, when it comes to making an assessment on the cost of dry docking, crew, insurance, technical management, there are many variables. The first task for the panellists to agree on were the definitions. What nationality should the crew be? How do you factor for a well-maintained vessel’s drydock costs compared with a vessel which has been pushed hard for five years?
When the project was first trialled, there were concerns that there could be a large variance in the assessments submitted by the rival ship managers. According to Philip Bacon, the returns have all been very close.
The biggest cost included in BOPEX-D is crew. The drydocking costs are assessed but not included within BOPEX-D.
Thanks partially to the strength of the U.S. dollar, crewing costs have not increased significantly in recent years. Crew costs for a capesize vessel were assessed at $2,850 per day in January 2020, which is over half of the daily total of $5,026 of the total BOPEX-D for this asset class.
Deciding on the nationality of the crew for BOPEX-D was not easy. There are currently around 0.5m Chinese, 0.4m Filipino, 0.3m East European and 0.2m Indian seafarers serving aboard the world’s merchant fleet.
In the end the panellists settled on using Indian or Eastern European officers with ratings from the Philippines. The crew assessments also assume that there are no cadets aboard, but that there is an in-lieu training contribution embedded in the crew cost. For capesize and panamax vessels, there is an assumption of 19 crew, but 20 aboard supramax and handysize ships which accounts for the employment of an electrician, required to service the onboard cranes.
The drydocking assessment does not contribute to the BOPEX-D headline figure, but is published separately as a lumpsum and based on a five year drydocking in China. Of the 12 days spent at the yard, five are deemed to be spent in drydock. The assessment assumes that the vessel has been well maintained and ready to sell so that no steel exchange, full blasting of the hull, or cargo hold upgrade are required.
Insurance costs assume that the ship’s P&I cover is provided by an International Group Club, that its Hull & Machinery insurance are first class H&M, that it is classed with a member of the International Association of Classification Societies. It also assumes that there have been no breaches of Institute Warranties Limits or Additional War Risks covered.
The Baltic Exchange welcomes additional third-party ship managers who wish to join the panel. For further details contact Philip Bacon. Email: firstname.lastname@example.org
BOPEX-D is published on a quarterly basis (January, April, July, October). Please visit www.balticexchange.com for further details.
Capesize: 180,000 mt dwt built in “first class competitive yard”, 199,000cbm grain, LOA 290m, beam 45m, draft 18.2m SSW. Not ice classed, not scrubber fitted, five years old and special survey passed.
Panamax: 82,500 mt dwt built in “first class competitive yard”, 97,000cbm grain, LOA 229m, draft 14.43m. Not ice classed, not scrubber fitted, five years old and special survey passed.
Supramax: 58,328 mt dwt on 12.80m draft SSW built in “first class competitive yard”. LOA 189.99m, Beam 32.26m, 72,360 cbm grain, five holds/hatches, 4 x 30mt cranes with 4 x 12cbm grabs. Not ice classed, not scrubber fitted, five years old and special survey passed.
Handysize: 38,200mt dwt at draft 10.538m SSW, built in “first class competitive yard”, 47,125cbm grain, LOA 180m, beam 29.8m, five holds, five hatches, 4 x 30mt cranes. Not ice classed, not scrubber fitted, five years old and special survey passed.
- Crew (USD per day, including all fees)
- Technical (USD per day, including all fees)
- Insurance (USD per day, including all fees and rebates)
The fourth, an assessment of a five year drydock cost, will be amortised over five years to give a USD/day price, but is published separately and does not contribute to BOPEX-D.