The Greek Shipping Estimation Model

Statistics Department

Athanassios Petralias, PhD Marios Papaspyrou, PhD email: [email protected] email: [email protected]

1 Background

 Until reference month August 2018 sea transport services were determined mainly on basis of ITRS data (transactions passing through the Greek Domestic Banking System).

Some History:  Task Force on Ships and Aircrafts (Nov. 2013). Clarifying the concept of Economic Owner on multi-territory enterprises; the one who runs the risks and the awards of an asset. Clarification is driven by Financial Leasing concepts.  Capital Controls come into force in Greece on July 2015. Monthly shipping revenues fall from the standard 1bn to 300mn euros in one month.

2 Objective

Develop a new model for the estimation of BOP items related to shipping activity (H5000) from 1/2015 - onwards, based on administrative data and international databases, taking into account the structure of the maritime cluster and the transactions, on an accounting basis, that take place both in and out of the domestic banking system.

Granular level approach/vessel by vessel characterization - Three steps:  Define the cluster, the main counterparts and the types of BOP transactions that take place and can be estimated.  Define the population (legal owner companies, operator/ship-manager companies and the vessels to be taken into account).  Estimate all possible BOP transactions of these vessels on a monthly basis.

3 STEP 1: DEFINE THE CLUSTER, THE MAIN COUNTERAPRTS AND THE TYPES OF BOP TRANSACTIONS

4 Some definitions: Players: Ship Owner (Legal Owner, Registered Owner, SPC/SPV), Ship Manager (most times is the Operator), Holding company. • The ship management company may manage numerous vessels, each one belonging to a different legal owner (each SPC/SPV typically owns a single vessel for risk-exposure and liability purposes), typically registered abroad for the Greek case. • The moment the ship is delivered by the shipyard Economic Owner = Legal Owner. This equality breaks in case of Financial Leasing or Bareboat Charterting. • In most cases for Greece, there is a Standard Shipmanagement Agreement between the Owner and the Manager, called “Shipman”. Under this customized agreement, the Manager acts on behalf of the Owner for the Operation of the vessel, but has a degree of freedom to take actions so as he to be effective. In this set up the Management Company is called the Operator and is defined as resident.

Standard Ship Management Agreement (Shipman 98, 2009)

6 DATA SOURCES

7 Main Data Sources

• Ministry of Maritime: A yearly report on the management companies established in the country along with the vessels they manage. • IHS Maritime and Trade & Lloyd’s List intelligence: Detailed data (on a vessel basis) for various types of ownership, vessel characteristics, new deliveries/deaths, port movement, crew, consumption, speed, draft etc. (Subscription fee required). • Clarksons Shipping Intelligence Network: Detailed monthly freight rate data by type of vessel (tanker, bulker, etc.), deadweight and year built. (Subscription fee required). • Drewry: Data regarding operating expenses by vessel type and build year: manning, insurance, stores and spares, maintenance, administrative costs and management fees. (Subscription fee required). • World Bunker Prices: Bunker Index (publicly available) • Port Expenses: Pricing policy of largest cross-trade ports worldwide (publicly available) • Banking data, DIRECT: Analysing correlations and trends among BOP shipping items.

8 STEP 2: DEFINE THE POPULATION

9 Define the population

Cases for which gross revenues and expenditures related to shipping services are included in the Greek BOP: • Based on the list of management companies provided by the Ministry of Maritime, identify the companies and their vessels, which are listed in the commercial databases as commercial operators with country of domicile Greece (checking logical coherence between the databases). Exclude from these cases the third party operator is abroad.

Cases for which economic ownership lies in Greece and import/exports of vessels (as well as shipping services) are included in BOP: • Identify ship owning companies and their vessels, with country of registration of legal owner Greece. Exclude from these cases there is bareboat chartering abroad. Include cases there is bareboat chartering in Greece (these are rare/few cases for the Greek case).

10 STEP 3: ESTIMATE BOP ITEMS

Requires: (a) estimating vessel by vessel freight revenues and all types of voyage and operating expenses and (b) allocating BOP items by country (including domestic)

11 BOP items related to shipping

Vessel’s revenues: Transactions between Operator and SPV: 1) Freight revenues 10) Management fees Vessel’s voyage expenses: 11) Net freight earnings= 2) Bunkers/fuel cost Freight revenues (1) – Vessel’s expenses (2-9) 3) Port Expenses Vessel’s operating expenses: 4) Manning costs 5) Insurance costs 6) Maintenance and dry docking costs 7) Stores, spares and lubricant oils 8) Flag state expenses and voluntary tax 9) Administrative costs (audit, inspections, owners disbursement, master’s entertainment, laundry, water, garbage, communication, oil sampling etc.) 12 Freight revenues (a)

Step 1: Identify based on the commercial databases if the vessel is hired:

Port Movement Draft the vessel is hired

Since there is no direct information of whether a vessel is hired, this can be indirectly inferred from its draft. A draft above 20-30% of its max depth signals the vessel holds cargo. Also if there is port movement and a few days later the vessel holds cargo, then one can also assume it was hired. Also, if there is port movement and the vessel is not laid up or under repair, one can also assume the vessel is hired; note that in some cases there is missing draft data, while there are types of vessels (i.e. passenger, tugs) not relevant for draft.

13 Freight revenues (b)

Step 2: For each vessel hired, calculate average revenues by vessel type and deadweight/TEU using the respective, monthly Clarksons’ time charter rate: • Oil tankers (by deadweight) • Chemical tankers (by deadweight) • Bulkers (by deadweight) • Containerships (by TEU) • General Cargo/Multi Purpose Vessel (by deadweight) • LNG (by CBM) • LPG (by CBM) • PCTC (by ceu) • Roll On Roll Off (RORO) (by lane) • Roll On Roll Off Passenger (ROPAX) (by lane) • Anchor handling Tug (on basis of power/bhp) • Platform Supply Vessel (on basis of deadweight) Since rates are provided for specific deadweights/teu’s, we use linear percentage

differences, among two adjacent deadweight/teu categories.

Step 3: Allocate the revenues to countries, on basis of the country of the ports visited by each vessel. 14 Bunkers/fuel costs (a)

• Commercial databases provide for each vessel the typical fuel consumption (in tonnes per day) at a given (cruising) speed. • However it is common practice for vessels to travel at reduced speeds, for fuel economy purposes. • Commercial databases provide also the observed speed. • There is a well-known theoretical formulae (related to the Admiralty coefficient), that links fuel consumption with the third power of speed:

Given the consumption 퐹0at speed 푉0, fuel consumption at speed 푉푖 is equal to:

3 퐹푖 = 퐹0 푉푖 푉0

(see for example Ronen D. 2011. The effect of oil price on containership speed and fleet size, Journal of the Operational Research Society, 62, 211-216.)

• In cases of missing values of speed or typical consumption, one can infer the consumption of the rest vessels on basis of calculated average consumption of vessels of the same type and deadweight, provided they are in service.

15 Bunkers/fuel costs (b)

Having calculated the actual fuel consumption (in tonnes per day) by vessel, we rely on world bunker indices to calculate the monthly fuel costs.

We use:

• Bunker Index for all commercial vessels except LNG

• Global LNG Prices (see for example https://bluegoldresearch.com/global-lng- prices) for LNG

Bunker expenses are then allocated by country on basis of the ports visited.

16 Port expenses (a)

Step 1: We find the largest ports worldwide, as well as canals, visited by vessels in the population, as indicated in the commercial databases. Indicative cases: Ports: Singapore, Fujairach (United Arab Emirates), Santos (Brazil), Piraeus (Greece), Transnet ports in South Africa Canals: Suez, Gibraltar, Panama, Dardanelles

Step 2: We calculate expected port expenses for each time a vessel visits a port or canal. The pricing policy is publicly available. • Main expenses include Berthing (a fee when entering the port) and Dockage (a fee while staying in the dock). • These fees typically depend on Gross/Net Tonnage or Length and duration of stay. • Duration of stay can be calculated either on basis of the commercial databases (last arrival day and last sailed date by vessel), or use average time in port provided by the port.

Port expenses (b)

Step 3: We find whether a vessel has reached a port on basis of last arrival date, which is available, along with the port visited in the commercial databases. • An approximation is to observe the arrival days and ports 3 times a month (every 10 days). • If there is an arrival to a port within the respective 10 day interval of the month, then the vessel is assumed to pay the port expenses calculated in step 2. • For missing cases (i.e. ports we have not retrieved detailed pricing data) we again observe arrival days by vessel and if there is a port visit we use the average cost paid by vessels of the same type and size in ports of the same country or the global average. • Port expenses are allocated on basis of the country of the port visited.

18 Manning

• Commercial databases provide for the majority of vessels total number of crew by nationality, as well as number of officers. • Drewry reports annually average manning costs by vessel type, deadweight and age. • International Transport Workers’ federation “TCC” collective agreement reports minimum rates received by officers and rest of crew.

Step1: We calculate for vessels in service, the total expected manning cost, depending on their type, deadweight and age. Step 2: We form the distribution of ethnicities and officers/rest of crew by vessel type and size, based on data of the commercial databases. Step 3: We allocate the total manning cost of each vessel to the respective ethnicity, weighted by the ratio of the rates received by officers with respect to rest of crew.

19 Other operating expenses

• Drewry reports annually average insurance, maintenance, dry docking (repair), stores, spares and lubricant oils, flag state expenses and administrative costs by vessel type, deadweight and age. Cross checks are done with results from annual reports of listed companies. • Commercial databases provide us with the information if a vessel is under repair or converting/rebuilding. Country allocation for repair costs is related to the port that dry docking takes place, which is available in the commercial databases. • Flag state expenses are allocated to the flag country. In addition, all vessels managed by a shipping company located in Greece pay voluntary tonnage tax. • The country allocation of administrative costs is not straightforward; an indication is again the port of last visit and, for a portion of them, the country of the operator/shipmanager. For example launches, garbage disposal, laundry, water is more related to the port visited. Audit, inspections, communications are more related to the operator/shipmanager country.

Transactions between Operator and SPV

Management fees (paid by the SPV to the Operator)

• Average annual management fees by type/size/age of vessel are reported by Drewry. • On basis of the commercial databases we find the country of registration of the SPV that pays the corresponding management fees to the commercial operator. Net freight earnings (paid by the Operator to the SPV) • We calculate net freight earnings, by subtracting from the total freight earnings all the vessel’s expenses (except management fees):

Net freight earnings Freight revenues Vessel’s voyage and operating expenses

Note that in the above formulae enter all vessel’s earnings and expenses, irrespectively if are related to residents or non-residents. • Net freight earnings are recorded as imports (exports) of sea transport services. • On basis of the commercial databases we find the country of registration of the SPV that receives the net freight earnings from the commercial operator. 21 Results

• The implementation of the Greek Shipping estimation model allowed to re-establish the continuance of the time series of sea transport services imports and exports, that has been observed in Greek BOP data after the introduction of Capital Controls (Law 18/7/2015). • On yearly basis, in 2018 exports of sea transport services (receipts) were estimated up to 14.2 billion € and imports of sea transport services (payments) up to 7.3 billion €. • The average utilization rate (i.e. the percentage of days in a month the vessels in the population are hired) was estimated (on basis movement data) up to 95.4%.

22 Evolution of exports and imports of sea transport services in the Greek BOP, before and after the introduction of the Greek Shipping Estimation Model (2002-2017, in million €)

23 Results (b)

Distribution of shipping operating and voyage costs paid abroad (2018Q4):

 53% of the total vessel expenses paid abroad were attributed to bunkers, stores, spares and oils, 23% to crew wages, 13% to port, administrative and tax expenses, 8% to maintenance & dry docking costs and 3% to insurance costs.

24 Thank you!

Source MarineTraffic; Cargo vessels and Tankers movement on 27/02/2018. 25