Dr.

Konstantinos Galanis
Operations & Technical Senior Manager
Seanergy Maritime Holdings Corp.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Practical shipmanager’s approach
General description of accounting in shipping
Address the way in which shipmanagers are accountable
for their work & how the ship management function
relates to the overall picture of ship finance

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Capital or Fixed costs
Acquisition of the vessel, (pre-delivery expenses, loan repayments & interest, leasing
charges, initial registration fees, taxes, etc.)
Vessel is taken on bareboat or demise charter, the charter hire is the equivalent of
capital costs
If purchase out of company’s own financial resources, an annual depreciation rate to
apply together with an appropriate return on capital employed
If the purchase is by means of a mortgage, loan repayment & interest will form the
principal fixed cost
Operating costs
Semi-variable
Relate closely with the employment of the ship
Daily Operating or Running Cost (DOC or DRC)
Crewing, storing, maintenance, insurance, administration, etc.
Voyage costs
Variable costs associated with the particular employment
Bunkers, port & canal charges, pilotage, harbor tug hire, port agency fees,
loading/discharging expenses, etc.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 In-house or independent entity under management agreement
Assumption: SM is a separate entity on a full management
package basis
Accounting issues
Budgeting
Processing
Reporting
Cash flow forecasting

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Ship characteristics (size, type & age of the vessel, type of Main
Engine & Aux. Engines, intended registry, crew, trading pattern, etc.)
Part of a managed fleet
New or newly-acquired ship
Technical inspection
Examination of Class records

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Budget Proposal

Next is a budget proposal for a N/B 58,000 dwt Supramax Bulk carrier.
For budget purposes, costs are on the basis of
- Marshall Island registry
- Full Indian crew
Sheet - 1: Monthly Operating cost for 1st year of management;
Sheet - 2: Assumptions for 1st year operating costs;
Sheet - 3: Crew wages breakdown;
Sheet – 4-5: Crew expenses Breakdown with ITF cover;
Sheet - 6: Lube oil expenses;
The crew wages include good service bonus for senior staff and hold cleaning / scavenge space
cleaning allowance for crew.

Singapore has been assumed for purpose of Lube Oil supply and Crew change.
Cost of forthcoming regulations, such as ECDIS, etc. are excluded from the budget.
Docking and pre-delivery estimates are excluded.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis
Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis
Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis
 Number of crew members and nationalities
Budget the main elements of crew costs
Owners are looking for general figures, i.e. annual salary
Leaves, overlapping
Due allowance: crew bonuses, social costs, insurance contributions,
pension funds, etc.
Training
Travel and repatriation
Sundry medical expenses

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Include victualing or provisioning of the ship
Per person per day in USD
Properly supervise the ship chandlers
Quality of food, invoicing
Stores vs. Spares: Consumables
Wires & ropes for mooring or cargo handling gear, lashing material,
packing material and gases or chemicals used for refrigerating
plant, boiler or tank cleaning treatments, paints, cabin stores, ship’s
stationary, laundry and fresh water supplies
Lubricants & greases (consumption)

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Spare parts
Repairs (shore labour or riding teams)
Survey and classification fees
Dry-dockings (spread the cost over a period of years on an
accrual basis or as a special item)

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Insurance premiums and estimated P&I calls (quotations &
renewal negotiations)
Slight variance with the actual cash position
Deductibles to be decided

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Superintending expenses, renewable dues, subscriptions and
fees (including agency costs where applicable for owner’s items)
and communication costs
Management fees

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Cash flow forecast to be prepared based on budget
Monthly periods
Monthly funding requirement

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Budget versus Actual analysis statement
Monthly or quarterly as a record of management performance
(Appendix)-percentage variance
Monthly statements containing cumulative analysis
Reasonably detailed documentary on all significant variances

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Cyclical nature of international trade ad the shipping market
Depression leads to vessels’ withdrawn from service (laid up)
Maintaining the asset value
Cost associated with proper care and preservation
Crew, Class, Salvage Association
Daily cost
Reactivation expenses (involving drydocking and extra survey)
Slow steaming as an alternative

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

 Assumption for independent shipmanager with full package
Contract
Crew
Commercial operations and chartering

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Case Study I
You have been asked to advise the costs associated with ship ownership.
(a) Explain what costs would be incurred in acquiring a vessel.
(b) Explain the difference between voyage costs and daily operating costs providing as
fully as possible a list of each of these.
(c) How would you allocate the following costs for a vessel under your management?
Crew travel and repatriation
Pilotage costs
Light dues
Repair of boiler
War risk insurance
Additional war risk premium
Canal dues
Tugs going into drydock
Registration fees
Supply of fresh vegetables

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Case Study II
You have been asked to brief potential investors on the various types of costs associated
with ship-owning.
a) Using examples, explain the difference in detail between voyage costs and daily
operating costs.
b) Explain all the costs an owner would probably incur with the acquisition of a vessel.
c) The following invoices have been presented to you. Under which headings would you
allocate the following costs?
Pilotage fees
Crew travel and repatriation
Port dues
Supply of Provisions
Draft survey
Supplementary P & I Call
Initial registration fees
Repair of Radio equipment

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Case Study III
You have been asked to prepare a budget for a client with a fleet of five Capesize bulkers.
a) Describe in detail the typical costs included in a budget estimate of the daily operating
costs.
b) Explain how you would monitor all these costs during the management of the vessel
and what circumstances might arise that could make significant variations to the figures.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Case Study III
Examiners report:
Another popular question which generally was well-answered, with some candidates giving
quite detailed costs to be included in a budget.
Merely listing the costs with only a brief explanation is not sufficient. Some candidates
included bunkers in the daily operating cost (DOC) and while a small amount of hotel bunkers
would be used for the vessel this is generally allowed for in the voyage cost estimate, as are
port costs.
The second part of the question was less well covered with some candidates focussing on
controlling and reducing costs which, while admirable, was not what was required. You were
asked to monitor the cost which means checking regularly through cash flow forecasts,
monthly statements and noting and explaining variances.
Significant variations might arise due to an accident to the vessel, a point made by some
candidates, but so would a change to the trading pattern of the vessel, particularly if
embarking on shorter voyages in a more expensive region.
You would also be affected by changes in the exchange rates. The UK pound has strengthened
against the US$ in the last few months before the exam which could make a significant
difference to the purchasing value of your earnings.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Attempt the following and check your answers from the text:
Prepare a budget estimate showing also daily cost and a cash flow forecast from the following
information.
Crew
Officers and ratings pay, leave pay and overtime $25,000 per month
Crew insurance and pensions $1,500 per month
Crew establishment and travel $48,000 per year
Crew sundries $5,000 per year
The main crew change is expected in March at a cost of $21,000 the remaining costs will accrue evenly over the year.
Storing
Provisions allowance $4.00 per day for 20 crew plus 5% allowance for extra meals
All deck and engine stores $52,000 per year
Lubricants $56,000 per year assuming 295 days at sea
Others $15,000 per year
Main storing takes place quarterly commencing January.
Maintenance
All maintenance $165,000 per year accrued evenly each month
Insurance
Hull & machinery $90,000 per year paid quarterly commencing January
P&I $40,000 per year advance call paid April, supplementary call of 20% payable October.
LOE/War risk $20,000 paid February.
Administration
All admin costs total $108,000 accrued in equal monthly installments. No dry-docking or special surveys need to be
budgeted.

Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis