OPEX: Why Benchmarking Matters
The publication of Drewry's Ship Operating Costs Annual Review and Forecast 2026/27 provides a timely reminder of the importance of benchmarking vessel operating expenditure (OPEX). With shipowners facing persistent cost pressures, increasing regulatory demands and continued geopolitical uncertainty, understanding how operating costs compare with industry norms has never been more important.
This year's Drewry review introduces an important new feature: inflation-adjusted operating cost data alongside nominal figures, enabling owners and managers to distinguish between cost increases driven by inflation and those attributable to other factors. The report also expands its coverage of ship repair yards, an increasingly significant consideration in maintenance and dry-docking budgets.
These developments highlight a fundamental point: effective OPEX management requires more than monitoring expenditure against budget. It requires an understanding of how costs compare with those of similar vessels and, crucially, why differences arise.
OPEX: A Key Determinant of Shipping Competitiveness
Shipping is an inherently cyclical industry. Freight rates are influenced by global trade, vessel supply, geopolitical developments and other factors largely beyond the control of individual shipowners.
Operating expenditure, by contrast, is one area where owners and their managers can exercise meaningful influence.
Vessel OPEX encompasses manning, insurance, stores and spares, lubricants, repairs and maintenance, and management and administration. These costs continue to be incurred regardless of whether freight markets are strong or weak.
During periods of high earnings, there can be a temptation to pay less attention to operating efficiency. However, when markets weaken, an unnecessarily high cost base can quickly undermine profitability.
The challenge is that simply reducing expenditure is not necessarily the answer. Cutting maintenance budgets, delaying necessary repairs or seeking savings in crewing without considering the operational consequences can prove considerably more expensive in the longer term.
The objective should therefore be cost efficiency rather than simply cost reduction, while maintaining appropriate standards of safety, reliability and vessel performance.
What Can Benchmarking Tell Us?
Benchmarking provides owners with an independent reference point against which to assess their operating expenditure.
By comparing individual vessels or fleets with relevant industry data, owners can identify areas where expenditure is materially above or below comparable vessels and investigate the reasons.
It can also reveal significant differences between vessels within the same fleet.
Two vessels of similar type, age and specification, operated under broadly comparable conditions, might be expected to have reasonably similar operating costs. Where substantial differences exist, benchmarking can help identify potential inefficiencies, differences in maintenance practices or opportunities to share best practice across the fleet.
Industry benchmarking initiatives, including those undertaken by Boston Consulting Group and Drewry, have demonstrated the importance of examining individual cost categories rather than relying solely on headline OPEX figures.
For example, a vessel's total operating expenditure might appear competitive while individual cost categories, such as manning, stores or repairs, are substantially above market norms. Conversely, an unusually low expenditure figure might reflect deferred maintenance rather than superior management.
Benchmarking therefore helps owners ask the right questions, rather than simply identifying the highest-cost vessels.
From Cost Comparisons to Better Decisions
The real value of benchmarking lies in its ability to support informed management decisions.
A properly structured benchmarking exercise can help owners:
Identify areas of potential savings: Establish which cost categories deviate most significantly from relevant industry benchmarks and warrant closer examination.
Evaluate ship management performance: Assess whether the costs incurred by third-party managers are reasonable, taking account of vessel characteristics, operating conditions and the services provided.
Improve budgeting and forecasting: Use independent industry data to assess the reasonableness of operating budgets and challenge assumptions underlying future cost projections.
Support commercial negotiations: Provide an objective reference point when discussing budgets and costs with ship managers, crewing providers and other suppliers.
Monitor performance over time: Distinguish temporary cost fluctuations from persistent trends and assess whether management initiatives are producing sustainable improvements.
The introduction of inflation-adjusted figures in Drewry's latest review adds a useful dimension to this analysis. An increase in nominal OPEX does not necessarily indicate deteriorating efficiency if costs have risen broadly in line with inflation. Equally, expenditure that appears stable may conceal changes in maintenance activity, vessel condition or service standards.
The figures need to be viewed in context.
Benchmarking Is Not Simply a Numbers Exercise
While the availability of increasingly comprehensive industry data is undoubtedly valuable, benchmarking has limitations if the underlying comparisons are not properly understood.
No two vessels operate under precisely identical circumstances.
Age, vessel type, technical specification, trading patterns, geographic deployment, maintenance history, crew composition and operational requirements can all influence operating expenditure. Differences in accounting policies and the allocation of costs between categories can also distort comparisons.
A
n apparent cost discrepancy may therefore have a perfectly reasonable explanation. Alternatively, an apparently satisfactory benchmark result may conceal inefficiencies that become apparent only through closer analysis.
For example, a vessel undergoing significant planned maintenance may report unusually high expenditure in a particular year. That expenditure may be entirely justified and could result in lower costs and improved reliability in subsequent periods.
Similarly, a vessel reporting exceptionally low maintenance costs may not necessarily be operating more efficiently. It may simply be postponing expenditure that will eventually become unavoidable.
The important question is not merely whether a vessel's costs are above or below the benchmark, but whether those costs are reasonable and appropriate in the circumstances.
This is where benchmarking must move beyond data collection and statistical comparison to informed analysis and professional judgement.
Turning Benchmarking Data into Meaningful Conclusions
Reliable industry benchmarks, such as those published by Drewry, provide a valuable starting point. However, access to good data does not automatically translate into better management decisions.
The real challenge is interpreting the results correctly: distinguishing genuine inefficiencies from justified expenditure, identifying the underlying causes of cost differences and determining what action, if any, should follow.
This requires not only an understanding of the benchmark data but also practical experience of vessel operations, ship management arrangements, accounting practices and the factors that influence expenditure.
At Mainstay Partners, we believe that the value of benchmarking lies as much in the interpretation of the results as in the data itself.
Through our experience of undertaking OPEX reviews and audits for a variety of shipowners, we have developed an understanding of the practical issues that can affect vessel operating costs and the challenges involved in assessing whether expenditure is reasonable.
This experience enables us to help owners look beyond the headline figures, examine apparent anomalies, challenge assumptions and distinguish between costs that may be reduced and expenditure that is necessary to maintain safe and efficient operations.
Importantly, an independent assessment can also provide owners with greater confidence when discussing operating budgets and performance with their ship managers.
Benchmarking should not be viewed as an exercise in identifying the lowest possible cost. Its purpose is to establish whether owners are receiving value for money and whether their vessels are being operated as efficiently and effectively as circumstances permit.
Having the right data is essential. Understanding what that data really means is what makes it valuable.
Mainstay Partners can assist shipowners with both OPEX benchmarking and the independent review and interpretation of the results, helping them reach sound, defensible and commercially valuable conclusions.
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