The cost of owning and operating dry bulk ships is the major component of our Group’s total costs, and our ability to maintain good control of our “daily vessel costs” has a significant bearing on our operating margins and our financial performance overall. We provide below a short analysis of our daily vessel costs for a better understanding of their components and development.
Operating expenses – The daily operating expenses (“Opex”) element of our vessel costs decreased 3% for Handysize and 7% for Supramax mainly due to scale benefits and procurement cost efficiencies.
Our fleet of owned dry bulk vessels experienced on average 1.0 day (2016: 2.6 days) of unplanned technical off-hire per vessel during the year.
Depreciation – Our depreciation costs (including capitalisation of dry-docking costs) were slightly reduced principally due to the addition of lower cost acquisitions.
Finance costs – Our owned vessels’ daily P/L and cash finance costs were US$810 and US$750 respectively for Handysize and US$1,170 and US$1,080 respectively for Supramax. The difference between the P/L and cash finance costs reflects the difference between the effective interest and coupon rate of our convertible bonds. Our Handysize daily finance costs reduced compared to 2016 while Supramax daily finance costs increased. This was due to the allocation of more convertible bonds interest to this vessel type as more Supramax owned vessels delivered.
Charter-hire – Our chartered vessels’ daily P/L and cash charter-hire costs were US$7,850 and US$8,330 respectively for Handysize, and US$9,240 and US$9,310 respectively for Supramax. The difference between the P/L and cash charter-hire costs mainly reflects the write-back of onerous contract provisions previously made in relation to our 2017 charter commitments.
Chartered-in days represented 47% and 77% of our total Handysize and Supramax vessel days respectively. Their respective chartered-in days increased 13% to 25,440 days (2016: 22,530 days) and 14% to 26,840 days (2016: 23,640 days).
During the year, we secured 1,560 Handysize vessel days (2016: 3,050 days) and 960 Supramax vessel days (2016: 330 days) via variable-rate, inward charters with rates linked to the Baltic Handysize and Supramax indices. These index-linked vessels represented 6% and 4% of our chartered Handysize and Supramax vessel days respectively.
Daily cash cost – Excluding non-cash elements of the above and overheads, our average blended owned and chartered daily cash cost was US$6,360 (2016: US$6,090) for our Handysize fleet and US$8,310 (2016: US$6,390) for our Supramax fleet.
General and administrative (“G&A”) overheads – Our dry bulk direct staff overheads and office costs, along with all overheads categorised as indirect overheads, amounted to US$53.5 million (2016: US$51.7 million). Spread across all our vessel days, these aggregate G&A overheads translated into a daily cost of US$600 (2016: US$660) per ship per day, comprising US$840 per day for owned ships and US$450 per day for chartered-in ships.
The Group’s total G&A overheads (including those of our remaining towage activities) amounted to US$54.4 million (2016: US$52.9 million), with the year-on-year increase of US$1.5 million attributable primarily to an increase in our staffing overheads as the owned fleet expanded.
Vessel operating lease commitments stood at US$396.5 million (2016: US$549.4 million), comprising US$269.2 million for Handysize, US$105.4 million for Supramax and US$21.9million for Post-Panamax.
Our Handysize operating lease committed days decreased 25% to 26,340 days (2016: 35,140 days) while our Supramax operating lease committed days decreased 36% to 8,590 days (2016: 13,370 days).
The Group released onerous contract provisions of US$20.3 million to the income statement following the utilisation of 2017 elements of the charters. At 31 December 2017, there remains a provision of US$28.8 million for time charter contracts substantially expiring during the next three-year period as charter-hire costs are higher than the expected earnings during this period. The remaining provisions will be released back to the income statement in the periods in which the charter payments for these vessels are due.
New shares were issued to 10 shipowners in 2016 in return for a reduction in charter-hire rates over a 24-month period on 10 of our long-term chartered ships (“Charter Hire Reduction”). The income statement still reflects the original contracted charter costs, but the cash payments in the 24-month period are reduced by the value of the shares issued. In 2017, the cash reduction amounted to US$6.2 million (2016: US$0.9 million), and for 2018, it is expected to be US$4.7 million.
The following table shows the average daily charter rates both on a cash basis and P/L basis for our chartered-in Handysize and Supramax vessels during their remaining operating lease terms by year as at 31 December 2017. Compared to the contracted charter-hire costs, i) the cash basis cost reflects the reduced payments following the Charter Hire Reduction; and ii) the P/L basis cost reflects the reduction due to the write-back of onerous contract provisions.
|Average daily rate (US$)||Average daily rate (US$)|
|Aggregate operating lease commitments||US$269.2m||US$105.4m|
As at 31 December 2017, our fixed rate and variable rate index-linked lease commitments for 2017 (completed) and 2018 (contracted) can be analysed as follows:
daily P/L rate
daily P/L rate
daily P/L rate
|Long-term (>1 year)||9,300||8,010||3,710||8,550||3,790||8,850|
|Index-linked||1,560||7,690||380||Market rate||10||Market rate|
|Long-term (>1 year)||2,840||11,670||1,400||11,700||1,170||11,650|
|Index-linked||960||9,180||410||Market rate||20||Market rate|
Certain long-term chartered-in vessels may be extended for short-term periods at market rates, but remain categorised as long-term charters.
Index-linked vessel operating lease commitments refer to leases with market-linked variable charter rates. The variable charter rates are linked to the Baltic Handysize and Supramax indices (as applicable) and adjusted to reflect differences in the vessels’ characteristics compared to Baltic indices reference vessels.