The capital,voyage and operating costs of ship operation and the modern management principles used in inventory control

Q. Discuss the capital,voyage and operating costs of ship operation and explain chief engineer’s role in optimising them.

what are the modern management principles used in inventory control.

Answer :-The three basic ship cost categories are: 

capital costs; voyage costs;  operating or running costs. 

1. Capital costs - (depend on how the ship is financed)

1.  are fixed costs associated with the ship’s purchase. 
2. include pre-delivery costs, loan repayments, interest, leasing charges, initial registration fees, taxes (sometimes), and any bareboat charterhire payable. 
3.  are the owner’ s responsibility. 
4. Depreciation costs:-Depreciation costs depend on:

• • cost of the asset,
• • expected salvage value of the asset,
• • estimated useful life of the asset, and
• • a method of apportioning the cost over such life
•    There are plenty of depreciation methods, e.g.:
• • straight-line depreciation
• • declining-balance method
• • sum-of-years' digits method
• • activity depreciation

2.  Voyage costs - 

are variable costs associated with the commercial employment of the ship. 

are the responsibility of the ship’s commercial operator. If the ship is let on a time charter, the charterer is
liable for the voyage costs. 

Voyage costs include:-

a) fuel costs/bunkers

b) port charges-port dues and service charges( e.g. tugs hire, pilotage, cargo handling ,agency fees.)

c) canal charges

Voyage costs: Fuel costs is depend on:

fuel price

engine power and  efficiency 

design and state of the hull 

ship’s speed

       Voyage costs: Port charges

Fees for the use of facilities and services provided by the port

Facilities uses fee is called port dues:-general use of port facilities ,this is based on:

volume of cargo

weight of cargo

gross tonnage fo the vessel

net tonnage fo the vessel

      Services:- service charges for pilotage, towage, cargo handling costs(loading/discharging)

      Voyage costs: Canal charges

Suez & Panama canal

Suez; charges are calculated in terms of the Suez Canal net ton (roughly corresponds to cargo-carrying space below the deck)and Special Drawing rights (not commonly used measures) charges vary for different types and sizes of ships

Panama; flat rate per Panama Canal net ton is used

3.  Operating or running costs - 

are semi-variable costs which fall between capital and voyage costs. 

are the responsibility of the ship owner or manager. 

a) crew costs,  b)stores ,  c)repair & maintenance  ,d)insurance  , e)administration

Operating cost	Items included in cost
Crewing	Officers’ earnings and leave pay; ratings’ earnings and leave pay; ratings’ overtime; pension and insurance contributions; crew establishment costs (recruitment, training, cadets, etc.); crew travel expenses; and sundry/unrecoverable medical costs
Storing	Provisions; deck stores - general; engine stores - general; paint; cordage; lubricants; cabin stores/laundry; and fresh water.
Maintenance	Deck repairs and spares; engine repairs and spares; electronics and navaids; and surveys.
Insurance	Hull and machinery insurance; P&I calls; war risks insurance; loss of earnings insurance; and deductible allowance.
Administration	Communication expenses; owner’s port costs; sundries; and management fee.

The modern management principles used in inventory control

 Lead time 

This is the time between 'shortage occurring' and the item being available to maintain supply. 

This influences the level of safety (minimum) stock. If supply lead time is longer than sales lead time. stocks are needed. If less. Stock holding can be entirely avoided. 

Lead time can be broken up, into several components 

1. order renew & processing time ie. time for comparing inventory with re-order levels time for re-order time for supplier to receive re-order 
2. Suppliers lead time (vendors, manufacturers, buying & dispatch) 
3. Transport time (from supplier to receiving bay) 
4. Receiving time-time taken for goods inwards & updating store records.

Minimizing Lead time Following actions can be taken to minimize suppliers Lead time

1. A precise date & time of delivery specified. This has a psychological influence on suppliers to deliver on time. 
2. Supplier made to understand that length of lead time can affect his perceived reliability 
3. Companies can also minimize lead time by putting in place systems to ensure prompt  re-order on stocks, approaching reorder level. 
4. Entering a partnership with major suppliers. can also help in reducing Lead time. 
5. Establishing a JIT (Just in Time) approach to Inventory management JIT Just In Time Management This is zero inventory Philosophy. where we have items when we need. and none when we don't. In a conventional inventory control. demand is predicted and based on "Lead time” the stock is acquired. 

Inventory Management Plan 

       This plan is based on Pareto's principle The lst  step is to class all spares & stores inventory into 3 classes. (ABC analysis) 

Class A Important, expensive items, small quantities. e g. Piston crown liner, connecting rods. Class A  items require tight control, accurate records and forecasting  correct demand. The JIT method is suitable. Personal supervision is  necessary 

Class B Significant it medium quantities eg Fuel PP plunger barrel, needle & guide. class B items can use a conventional stock control is placed system. order based on  predicted demand, lead time and minimum spares policy.

Class C unimportant items of large quantities e.g. Nuts & bolts, gaskets, spanners Class C items require minimum management supervision, Care must however be taken, to avoid excess Inventory or complete nil Inventory