www.shipcosts.com
30 Aug 2017 18:27 (GMT+1)

Why we need new approach to OPEX management?

While some of you will be correct arguing that OPEX optimisation is a small challenge in comparison to shortage of income, there is a good reason to look at this from different perspective. If we consider two companies operating in the same market and struggling with the same challenge of low charter rates, we never see the same financial performance results. It will depend on number of factors but mainly on: 


1.The revenue from chartering
2.The model of financing

3.The cost of operating the vessel/other assets


While individual players can not significantly influence the market rates, and if we assume that finance costs are not something you can improve without implementing new finance models, the only area where companies are able to achieve improvement is vessels operating costs and G&A. Depending on the type, age and size of the vessel, the operating costs may represent from 14% to 45%, which is good news in terms of amount of savings companies can count for. 


Another point is that the business with smart OPEX  management looks more attractive for investors and shareholders. They will appreciate management's efforts to optimise business processes via innovative initiatives and digital solutions. 


The bad news however is that many shipping and offshore companies have already run through cost-cutting programs, in order to meet market challenges. What they have done? They laid up vessels, froze all development initiatives, fired crew, closed up offices and reduced office staff. Well done! While these seemed to be right solutions at the time, I strongly believe that this way is the way to nowhere for the shipping and offshore industry. This is also sadly discouraging for young generation who become less and less interested in building their future with shipping and offshore industry. 


The answer is well known. It is new technology, digital solutions and optimisation via innovation. While we are so good to talk about it at the various conferences and gatherings, it is also time to act. Companies should look outside the box and instead of creating cost-cutting groups inside, go and share their pain points with those industry innovators who has developed smart solutions for business optimisation. 



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7
last 49 years ago

Comments

Interesting to learn about the Opex Management
1
1 year ago
@Olga, there are various innovations and digital solutions available and we happen to offer one that helps ship owners with surplus equipment. When we were building a marine marketplace, our intentions is to find an alternative business opportunities; however as it turns out, ship owners and offshore operators are so bogged down with surplus equipment that were either too expensive to scrap or they could not find a better buyer to which they have to continuously pay for storage. We also begin to realize that we can help small businesses with our online portal instead of having to pay for expensive advertising that do not offer interactions. All in we had a wonderful journey because we believe technology is to bring positive contributions for business yet mindful of the environmental impact to recycle or to reuse, so that we can simultaneously achieve positive growth and have a sustainable environment for future generations. I believe there gaps which we can collaborate with Shipcosts and I hope to explore any opportunities if you will be keen. Visit us :- http://www.MarineCentral.sg/
3
The shipping world tends to be old-fashioned, with many people handling the daily vessel management being much too bound by tradition and the thinking; "I always did like this". You are absolutely right. Innovation, the will to think different and not least the courage to try new ways, is the way to overcome the current hard times.
2
1 year ago
Yes, shipping tends to be old-fashioned but we have seen younger generations have greater tendencies to adapt technology. We believe there are many innovators such as @Eivind dares to embrace change but the word "disruptive technology" are too over used, as anyone would immediately think the tech will disrupt their business and made them irrelevant. True to some extend but we sees ourselves as innovating and extension of their existing business model, maybe some work scope will be made irrelevant due to tech however experiences and knowledge are still valued in our industry.
2
It could be interesting to see an real example of the advantages to OPEX management
1
OPEX Management has an enormous advantage. If executed right it will mean you are in control as a part of the set targets for your unit, ship, fleet. But do not focus on the last two letter EX but on the first two OP. When in control of operation the result will be cost control. I have been managing the largest heavy lift crane vessel up to date in the world for 5 years. Together with my shore- and vessel teams the challenge is to dare to ask questions, brake with old habits and introduce technology as a helping tool to achieve new methods, better procedures, savings and improve operation without cutting in crew or jeopardize safety in two digit % figures.
2
Well...although I appreciate the narrative given of the Opex and think it is well written, I think one need also add-in the "purpose" of the investment by the Owners/Investors as an essential factor. It always start where the money is and what the investors intentions with their investment are. Investor behaviour and their rationale behind their investment is many times quite peculiar. OPEX is just a sub catergory, only, and it's impact depends on whether the owners/investors look at the investment as short-term or long-term assets and therefore for them the ship price/value and time charter rates exhibits much higher volatility than the OPEX per se which rather is considered as a deterministic factor. Another point not to forget is also the age of the ship when the Owners made the investment. It's also depended on the market situation when they made the investment...did they underestimate the market and make an overinvestment that they did not forsee that resulted in unsustainable returns and therefore create a pressure on OPEX? However, the fundamental value for any investors is always linked to the cash-flow generated. The OPEX becomes more important as the ship ages. Therefore I believe it's essential to split the vessels into separate age categories when starting to discuss the impact of OPEX will give a much better argument for change. Said so, I can admit that I started to look at modernization of the OPEX for more than 6 years ago but there has been limited response, strangely. Maybe to carry this discussion further, I would encourage the author (Olga) to present some thoughts on the framework on how a modernized OPEX could look. That would be an interesting discussion where I shall be much grateful to participate in.
2
1 year ago
As a third party manager you have only the option for opex management
2
Agree, Andre, unless we transform abbreviation OPEX (operating expenses) into OPEX (operational excellence) :) Seriously, I divide managers into Cost reducers and Cost avoiders. When you avoid costs, it has potential to end up with new cost on top. For example, postponing maintenance, shutting down offices without back up plan etc. These reactive measures are the history (unless the company is in the situation when they have to “dress a bride” ). Digitalisation is a key for further performance improvement.
3
With regards to CAPEX /OPEX comment by Svein, obviously OPEX is just one category in the shipowners expenditure, along with capital costs, voyage costs, periodic maintenance (sometime included or out of OPEX). My point is that OPEX is the category that can be improved by smart management and digitalisation, and category available for ship managers. If the decision was taken long time ago with regards to financing scheme, it’s not going to be changed within one week. With the vessel age OPEX % normally increases, so the idea of classification of OPEX by vessel age is absolutely supported. I think this was introduced by Martin Stopford long time ago, but very limited focus on the topic recently. And it’s a pity, because it has a lot of potential. As for OPEX optimisation, my idea is to categorize OPEX (Crewing costs, spares, stores and lubes, insurance and so on ) and make/encourage new innovative digital tools to be easily available and affordable in the industry for improvement of each category. Currently I am working on the digital system that will improve one of the crew management processes. I think the area has great potential.
2
@Clement Thank you for your comments and I agree that as we are talking about digitalization for more than three years,, many are still in the talking mood, because it’s just does not feel comfortable to change what they did for decades. I will absolutely check on the initiatives on your website. Thank you for inviting.
3
1 year ago
Reason for my interest with this post is Olga's forward thinking to deploy technology for opex management. Far too often we sees wastage, inefficiencies and poor inventory management in ship management and ship owners which no one wants to address. Ask any ship owner if they keep spare parts or surplus equipment ashore in a warehouse somewhere and you can be sure of a positive answer. While critical surplus spares and equipment are necessary to ensure minimum downtime when there is a break down; storage of these spares that also incur warehousing cost becomes a necessary evil to the books of an accountant. After years of storage, as the vessels are sold or scraped, these surplus spares will still remain in their warehouse and continue to incur warehousing cost. Don't believe me? ask anyone in Maersk, Teekay or even some of the smaller ship owner; no one is looking at how to manage these surplus besides sending them to the scrap yard. That's not the worst, I have seen owners paying through their nose just to dispose good fast response boat just because of the latex and other material involved. I do wish Olga success with her endeavor to embark on capex and opex management because I was hoping to collaborate with her to provide an alternative solution for ship owners to dispose surplus equipment they do not need. Here we call it a marketplace :- MarineCentral (http://www.MarineCentral.sg/)
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