Daily Vessel Costs and Commitments

The cost of owning and operating dry bulk ships is the largest 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.

Vessels’ Daily P/L Costs


Operating expenses – The daily operating expenses (“Opex”) remained substantially unchanged at very competitive levels as a result of scale benefits and procurement cost efficiencies.

Our fleet of owned vessels experienced on average 1.2 days (2017: 1.0 days) of unplanned technical off-hire per vessel.

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$740 and US$680 respectively for Handysize and US$1,090 and US$1,000 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.

Charter-hire – Due to the stronger market in 2018, our chartered vessels’ daily P/L and cash charter-hire costs increased to US$9,440 and US$9,880 respectively for Handysize, and US$11,950 and US$12,050 respectively for Supramax. The difference between the P/L and cash charter-hire costs mainly reflects the release of onerous contract provisions previously made in relation to our 2018 charter commitments.

 

Long-term
(>1 year)
Short-term Index-
linked
Total
Handysize
Vessel days 7,450 13,250 600 21,300
Average daily P/L rate 8,600 9,960 8,380 9,440
Supramax
Vessel days 2,820 16,770 1,090 20,680
Average daily P/L rate 11,530 12,100 10,790 11,950

Daily cash cost – Excluding non-cash elements of the above as well as G&A overheads, our average blended owned and chartered daily cash cost was US$6,790 (2017: US$6,360) and US$9,770 (2017: US$8,310) for our Handysize fleet and Supramax fleet respectively.

General and administrative (“G&A”) overheads – Our total G&A overheads amounted to US$59.8 million (2017: US$54.4 million). Spread across all our vessel days, these total G&A overheads translated into a daily cost of US$740 (2017: US$600) per ship, comprising US$950 per day for owned ships and US$540 per day for chartered-in ships. The year-on-year increase is due primarily to an increase in our staffing overheads combined with a smaller total fleet comprising fewer chartered-in ships partly offset by a larger owned fleet.

Vessel Operating Lease Commitments

As at 31 December 2018, our future vessel operating lease commitments stood at US$317.1 million (2017: US$396.5 million), comprising US$206.3 million for Handysize, US$95.6 million for Supramax and US$15.2 million for Post-Panamax.

Our Handysize operating lease committed days decreased 24% to 20,040 days (2017: 26,340 days) while our Supramax operating lease committed days decreased 11% to 7,620 days (2017: 8,590 days).

Commitments Excluding Index-linked Vessels

The table below shows the average daily charter rates for our chartered-in Handysize and Supramax vessels during their remaining operating lease terms by year.

 

 Handysize  Supramax
Long-term (> 1 year)  Short-term Total Long-term (> 1 year)  Short-term Total
Year Vessel days Average rate Vessel days Average rate Vessel days Average rate Vessel days Average rate Vessel days Average rate Vessel days Average rate
1H 2019 3,590 10,260 910 10,240 4,500 10,250 1,090 13,170 2960 12,010 4,050 12,320
2H 2019 3,350 10,160 60 11,260 3,410 10,180 1,080 13,210 210 11,410 1,290 12,920
2019 6,940 10,210 970 10,310 7,910 10,220 2,170 13,190 3,170 11,970 5,340 12,460
2020 4,020 10,420 - - 4,020 10,420 1,560 13,030 - - 1,560 13,030
2021 3,130 10,150 - - 3,130 10,150 590 12,240 - - 590 12,240
2022 2,490 9,920 - - 2,490 9,920 130 12,500 - - 130 12,500
2023 1,470 10,620 - - 1,470 10,620 - - - - - -
2024+ 1,020 11,310 - - 1,020 11,310 - - - - - -
Total 19,070   970 20,040 4,450   3,170 7,620

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 rates linked to the Baltic Handysize and Supramax indices (as applicable). 80 index-linked Supramax days are currently committed for 2019.

Following the adoption of new accounting standard HKFRS 16 “Leases” on 1 January 2019, charter-in operating leases of longer than 12 months will be accounted for on balance sheet as right-of-use assets and lease liabilities.

Onerous Contract Provisions

The Group released onerous contract provisions of US$16.1 million to the income statement following the utilisation of 2018 elements of the charters. Due to our expectation that future vessel earnings will be higher than the cost of our time-charter commitments, the remaining provisions of US$12.7 million were written back to the income statement in 2018.

Charter Hire Reduction by Issuing New Shares in 2016

In 2016, new shares were issued to 10 shipowners in return for a reduction in charter-hire rates on 10 of our long-term chartered ships (“Charter Hire Reduction”) over a 24-month period. This arrangement ended in 2018. Under the arrangement, the income statement reflected the original contracted charter costs, but the cash payments were reduced by the value of the shares issued. The cash reduction amounted to US$4.7 million in 2018.

Vessel Capital Commitments

As at 31 December 2018, the Group had commitments of US$44.8 million for three vessels. One of these vessels was delivered in January 2019 (resulting in 111 owned ships as per our fleet table on page 1), one delivered in February and the remaining vessel will be delivered by the end of March 2019.

As at 31 December 2018, the Group had options to purchase 7 Handysize, 2 Supramax and 1 Post-Panamax vessels at predetermined times and prices during the period of their leases. These options are not expected to be exercised under current market conditions.

 

US$ Million Number Total
Handysize 1 17.2
Supramax 2 27.6
3 44.8

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