Capex opex http://www.diffen.

com/difference/Capex_vs_Opex
Capex, or capital expenditure, is a business expense incurred to create future
benefit (i.e., acquisition of assets that will have a useful life beyond the tax year).
For example, a business might buy new assets, like buildings, machinery, or
equipment, or it might upgrade existing facilities so their value as an asset
increases.
On the other hand, those expenditures required for the day-to-day functioning of
the business, like wages, utilities, maintenance, and repairs, fall under the category
of Opex, or operational expenditure. Opex is the money the business spends in
order to turn inventory into throughput. Operating expenses also include
depreciation of plants and machinery which are used in the production process.
Comparison chart
Capex versus Opex comparison chart
Capex

Opex

Definition

Capital expenditures are

expenditures creating future
benefits. A capital expenditure is
incurred when a business spends
money either to buy fixed assets or
to add to the value of an existing
asset with a useful life that extends
beyond the tax year.

OpEx (Operational expenditure)

refers to expenses incurred in the
course of ordinary business, such
as sales, general and
administrative expenses (and
excluding cost of goods sold - or
COGS, taxes, depreciation and
interest).

Also
known as

Capital Expenditure, Capital

Expense

Operating Expense, Operating

Expenditure, Revenue Expenditure

Accountin
g
treatment

Cannot be fully deducted in the

period when they were incurred.
Tangible assets are depreciated and
intangible assets are amortized
over time.

Operating expenses are fully

deducted in the accounting period
during which they were incurred.

In
throughpu
t
accountin
g

Money spent on inventory falls

under capex.

The money spent turning

inventory into throughput is opex.

Examples

Buying machinery and other

Wages, maintenance and repair of

Capex versus Opex comparison chart

Capex

Opex

equipment, acquiring intellectual

property assets like patents.

machinery, utilities, rent, SG&A

expenses

In real
estate

Costs incurred for buying the

income producing property.

Costs associated with the

operation and maintenance of an
income producing property.

Procureme
nt
Involveme
nt

Purchasing rarely takes the lead,

but only assist in the procurement
of the item. The negotiation process
also takes much longer.

Everyday items bought on a

regular basis and minimum stock
levels kept. It also does not incur
any maitenance cost or repair

https://www.marinemoneyoffshore.com/node/5633

SHIP MANAGEMENTS EFFECT

ON PROFITABILITY
By Peter Wallace
The technical ship management function is critical aspect to maintaining a
profitable and well respected shipping venture. Ship managers control or influence a
large part of shipping expenses, but ship managers have the most dominant
influence on overall expenses. This team also affects the quality of charters, the
quality of crew, the quality of suppliers and the owner's reputation. The owner's
reputation affects the cost of capital.
Ship Management Business Proposition
In order to understand the ship manager's invoice, it is important to understand
what the technical ship manager's business proposition is and how the ship
manager is compensated. This brings to light what the ship manager can
legitimately charge and the areas that an owner must be vigilant to avoid
overcharging or fraud.
A typical ship manager can basically only sell their time and services and
subsequently charge an annual fee plus extraordinary costs on a standard contract
such as the BIMCO Ship Management form. They have essentially no risk when it

comes to liability: The ship manager has limited liability--even in cases of gross
negligence. Ship managers that have an equity position has a different perspective
on the business proposition and have much greater liabilities than "pure" ship
managers. Vessel operating costs and costs associated with managing the vessel
above the ship manager's standard services are usually charged to the
vessel/vessel owner. Thus, ship managers that have no equity position or not
otherwise tied to the performance of the vessel are competing against other ship
managers for quality of service. The true operating costs of the vessel are of little
consequence because they are passed through and paid with the owner's funds (it
is virtually unheard of for a manager to front an owner funds for any operating
costs).
A ship owner has an entirely different business propositionchartering the vessel
for more than the combined capital costs (CAPEX) and operating expenses (OPEX).
Thus, a penny saved is a penny earned. Shipping, like most other mature industries,
is highly competitive with little separation between the highly profitable titans and
the failing enterprises.
Table 1 shows an example of how the costs are compared for a typical ship owner
and a typical ship manger assuming 30 vessels in the fleet, international trading dry
bulk or tankers that have been substantially written down. The owner overhead is
comprehensive because it accounts for a high rent, staff compensation and other
GA services.
As the table illustrates, the ship manager's sense of "cost" is very different from the
ship owner's sense of cost. Furthermore, pushing the ship manager for a significant
reduction in, say rent, of 20% will affect the owner's daily cost by less than 250
$/day or 0.074%. Likewise, a ship manager claiming significant internal cost
reductions as a selling point must be evaluated in context of the other costs a shipowner faces.
The next consideration is operating leverage and how that applies to ship managers
and subsequently the owner's expense/profit line. If operating leverage is defined as
the very large profit margin for taking on a small piece of additional business (say
50% profit margin over the baseline profit) because it is on the back of a substantial
infrastructure, then ship owners have a substantial operating leverage advantage
over ship managers. Ship managers have a true operating leverage in a small area
of between 25 and 50 ships. Above this portfolio size, ship managers have
incremental gains that diminish to practically zero above 75- 100 ships (depending
on how efficient the ship manager's internal operation is).
Nevertheless, the ship management function must accomplish the same results
whether it is internal or out- sourced. The ship management function controls or
influences 40% of the total shipping enterprise with a cost to the owner of 5% of the
shipping enterprise: This is one of the most compelling reasons why excellent ship
management is worth the fee (out- sourced) or cost (internal).
Where Ship Management Affects the Owner's Balance Sheet

The efforts of ship managers ultimately affect the owner's financial performance.
The obvious ways include keeping operating expenses reasonable and keeping the
ships operating with no "unplanned offhire"a euphuism for breakdowns, port state
control or other incident which takes the vessel off charter which was not planned
by the owner, charterer or ship manager. The less obvious ways the ship manager
affect the ship owner's financial performance include better rates for insurance/P&I
coverage, reduced planned offhire times (e.g. drydockings) and preservation of the
ship's value. Examples of poor management might include an owner allocating 10
days per year for unplanned offhire instead of the zero days consistently achieved
by first class managers. Another example of excellent ship management would be
reduced planned offhire in way of drydockingan average manager might require
30 days for a complete shipyard period, whereas an excellent manager can
accomplish a special survey/shipyard period in as little as 10-15 days. For a VLCC
earning 45,000 $/day, the poor management would cost 450,000$ /year of revenue
from "unplanned offhire" (plus the very expensive repairs for emergency work)
whereas an excellent manager would gain about 360,000 $/year in additional
charter time for more efficient shipyard periods. Although the operating expenses
could nominally be the same between the excellent and the poor manager, these
two areas correspond to a difference of around 800,000 $/year (2,250 $/day) when
the drydocking is allocated over a 30 month period for the ship owner's income.
Chart 1 shows the relative OPEX differences between the "The Excellent, The Good
and The Poor" ship managers. This is followed by a discussion on the effects for a
shipowner and how it affects the shipowner's business of attracting capital,
attracting good charters and attracting good suppliers of services and materials.
Chart 1 shows the relative differences on a gross scale. A closer review will show
differences on a departmental level and how they correspond. This chart shows the
direct and indirect effects of excellent, satisfactory and poor ship management
practices in the relative extremes. That is, the excellent ship manager is excellent in
all areas and the poor ship manager is poor in all areas.
An example portfolio of 10 ships comprised of 4 VLCCs and 6 dry handysize bulk
carriers provides a good example of how the operating costs are divided and the
relative effects of an excellent, satisfactory and poor ship management practices.
Table 2 and Chart 2 show these expenses for a satisfactory ship manager.
For the purposes of simplification, Drydock and Special Survey are included in the
Maintenance and Repair (M&R) category. Lube Oil is included in the Purchasing
category. Insurance, including Hull and P&I is not included in the expenses because
it is assumed the owner is directly engaged with this line item.
From the preceding charts, it is readily apparent that crewing is the dominant
influence on controlling operating expenses. Motivated, well trained, experienced
crews that are organized and efficiently managed are the keys to keeping all other
costs controlled andmore importantlypredictable. The crew, while managed and
organized by the ship manager, is generally responsible for the direct and indirect
control of operating expenses related to crewing and other areas.

But the part that cannot be overstressed is that crewing process of the ship
management function can only show its excellence when it is tightly integrated into
the total ship management function. The big savings comes in way of indirect cost
control. The indirect costs are classified as those that are not directly in the Crewing
budget, such as travel, wages or irrecoverable expenseswhich are generally
handled quite well by most reasonably good ship managers. The indirect costs are
the ones that appear in other budget items such as Purchasing or M&R because of
poor ordering practices (placing purchase requisitions too late for economical price
and delivery) or poor tank work requiring an immediate reblasting and recoating.
The crew that is well trained and loyal to the company will avoid these bad practices
for many reasons: they are aware of the ordering cycle and lead times and they do
good tank work the first time to avoid redoing the same tank only a few months
later.
The areas of operations and M&R just about equal in controlling operating expenses,
but we will examine the items separately.
The ship manager is principally responsible for the direct and indirect actions in
Operations. Operations is the one area where coordination separates the excellent
from the poor. A good Operations department ensures efficient use of helicopters,
minimum number of launches, coordinated storings, well timed vetting inspections
and the like. A satisfactory ship manager can typically coordinate well enough to
keep last minute issues from becoming very expensive from a cost and delay point
of view (although ship managers do not see the charter cost of delays, the owner is
quite aware of the lost hire time).
Maintenance and Repair is an area where excellent ship managers truly separate
themselves from satisfactory or poor ship managers. This area gains excellence by
keeping the ship's crew productive and not performing repetitive or unnecessary
work. The M&R department can keep the costs to a minimum by proper scheduling
of surveys and repair work, providing enough lead time to order spares or other long
lead items and delivering to low cost ports. The M&R department, is also primarily
responsible for maintaining the value of the vessel by first class M&R effortsin
some cases, the M&R function can add value to a vessel by improving its hull
condition (coatings, corrosion control or addressing known structural problems)
and/or the machinery condition by retrofits or bringing poorly performing equipment
to standards. Maintenance and Repair is also heavily influenced by the crew: a great
crew can accomplish a surprising amount of work when they are familiar with each
other and the vessel.
Procurement is a smaller expense with that is influenced in equal parts by the crew
and the ship manager. Procurement is an area where improvements from standard
are hard to obtain, but expenses above the standard are frequent. Procurement
problems stem from areas such as poor ordering practices of the crew and home
office, poor interaction with the suppliers, poor choice of suppliers and badly
coordinated deliveries (high cost ports, disjointed deliveries, etc.). Excellent
purchasing is characterized by good ordering practices (clear orders with sufficient

lead time), good selection of suppliers with close relations and excellent
coordination with others for delivery to the vessel.
The insurance, including P&I, reflects the fleet composition, size and claims records.
This implies that a well run vessel, with no incidents triggering a claim, will have a
lower premium. Furthermore, particularly with P&I, the perceived quality of the ship
manager has a significant effect on the premium.
Sample of Relative Costs
With the differences in operating costs outlined, it is possible to see how they can
be applied in the larger picture that the ship owner operates. One example is
presented showing the CAPEX and OPEX for a modern VLC C. These are compared
with some of the items the ship owner is aware of, such as offhire and better charter
rates for better operated tonnage. Again, this illustrates the extremes of ship
management.
This example, while extreme in its portrayals of excellent compared to poor ship
management, shows a difference of a company losing money and a company which
is enjoying an excellent profit on a vessel which, in all other respects, is identical.
How to Select a Ship Manager or Design an Internal Team
This section covers some of the important items to look for in a ship management
team, regardless of whether the ship management is out- sourced or internal.
The most important element for the owner to establish is the operating style that is
most appropriate to the vessel, trading pattern and the owner's own comfort. Major
considerations include the following:
Geography of the trade pattern, for instance worldwide tramping, regional
coverage, liner or regular trades.
Centralized vs. Decentralized: Some ships can be very effectively managed with a
decentralized structure. Others cannot. Determine which structure is correct either
on a per ship or fleetwide basis as early as practical.
Specialized or general fleets/services: Many owners have a single vessel type (e.g.
all Aframax crude tankers) or a mix of vessels that might include tankers, bulkers,
container ships and possibly offshore installations. This will dictate whether or not to
engage multiple specialized ship managers for outsourced work or sole source to a
full service manager.
Determine how much outsourcing the ship manager does and to whom: Many third
party ship managers subcontract specific services to other specialists. The most
common is the use of a specialized crewing manager. An owner should determine
how much subcontracting he is comfortable with and determine what the risks and
benefits of this approach provides.
Obtain a sense of operating style and stability from a variety of sources, including
standard metrics. High crew turnovers are not good. Excessive sole sourcing of
shipyards or suppliers on very long terms (multiyear) is an indication of potential

trouble: likewise with 100% spot M&R/purchasing. Review the controlled fleet for
port state control and incident records.
References
The best possible way to get a subjective sense of how the ship managerinternal
or externalis to get references from a variety of sources. These include suppliers,
shipyards, individual crew members, insurance brokers, P&I clubs, port agents,
charterers and other owners. Recheck the references frequently and follow up on
why references are good or bad.
Quotations
Obtain multiple quotes from various ship managers and ask yourself what is missing
or included in each quotation. Do they include everything such as a Drydock and
Special Survey allocation? Do they provide realistic numbers?
Ship owner control on ship manager
A ship owner is bound to get less than stellar results without good control over the
ship manager. This applies equally to both third party and internal ship
management teams. The following can provide a good basis for maintaining the
necessary level of control.
Reporting: Reporting of all happenings with the ship in clear, organized and detailed
manner will provide a con stant flow of information to frequently evaluate the
management and the fleet. Excellent reporting will also allow for the owner to
identify problems before they occur and to consistently improve the operation. Poor
reporting is often a source of confusion and an indication of poor organization within
the ship management group.
Owner's Representative: The ship owner, especially in cases where third party
management is used, must have a representative that understands ship operations
on all levels. This representative must also be entrusted and willing to constantly
follow up on the manager and directly with the vessel. The owner's representative
must be willing to visit the ships take an active role in inspections, audits and
witnessing all manner of operations. A good owner's representative also provides a
morale boost to the crew because it indicates to the crew that the owner cares
about ship and all that happens onboard and around.
Close Contact: The ship owner must maintain close contact at all times with the
manager and the vessels. This serves as a constant reminder to the manager and
the crew that the owner is aware of the activities.
Ability to change management: Changing ship managers is a difficult and costly
excercise for all parties.
There are transfers of records, audits/reaudits related to class, ISM and a whole host
of other issues. But a ship manager who senses that an owner is reluctant to
change management teams is automatically placed in a position of not having to
provide excellent service. An owner must

make it abundantly clear that the ship can and will be moved to other managers if
the present system provides less than satisfactory results.
Constant References: Consistently check references from a variety of sources to
ensure the manager is providing the expected level of service. Consistently cross
check the references to ensure validity.
Conclusions
Ship management is a frequently overlooked aspect of shipping. Yet, ship managers
control or influence some of largest costs associated with owning and operating a
ship. Furthermore, ship managers control or influence the costs most subject to
wide variations.
Summarizing:
Poor Ship Manager: Unpredictable costs, high operating costs, detraction from the
owner's reputation and many restless nights for the owner.
Good Ship Manager: Predictable costs, reasonably competitive costs, maintenance
of owner reputation and piece of mind for the owner.
Excellent Ship Manager: Predictable costs, highly competitive costs, improvement of
owner reputation and piece of mind for the owner.
Relative Costs for Owner and Ship Manager
Manager
$64,800,000

Salaries

$5,100,000

$48,600,000

Services

$500,000

$7,500,000

Rent

$460,000

$335,833

Daily Cost

$16,833

Owner
CAPEX
OPEX
Overhead
Daily Cost
CAPEX: Substantially written down vessels,
6,000 $/day per vessel
OPEX: 4,500 $/day per vessel (includes ship
management fee)

Owner Overhead: (including rent, staff compensation,

IT and other GA services).
Rent: Taken at 30 $/sq ft which is average for
Class A, midtown Manhattan.
Table 1
Example Daily Operating Costs of Sample Vessels and Composite Fleet
Category

VLCC

Dry Handy

Composite
(per vessel)

Number

10

Crewing

$3,200

40%

$2,038

56%

$2,503

46%

M&R

$1,356

17%

$500

14%

$842

16%

Operations

$1,100

14%

$350

10%

$650

12%

Purchasing

$2,000

25%

$500

14%

$1,100

20%

Management

$417

5%

$278

8%

$334

6%

Total

$8,073

$3,666

$5,429

Table 2
Overall Gains/Losses for VLCC Owner based on Ship Management
(All values in USD/day)
Item

Excellent

Good

Poor

CAPEX

$22,871

$23,714

$24,578

OPEX

$5,785

$8,072

$16,346

Insurance

$350

$400

$500

Unplanned Offhire

$0

$0

$1,111

Planned Offhire

-$694

$0

$1,667

Owner's Overhead

$657

$657

$657

Charter Rate

$50,000

$45,000

$40,000

Total Cost

$28,969

$32,843

$44,860

Gross Profit

$21,031

$12,157

-$4,860

Gross Profit

42%

27%

-12%

Table 3
http://whatis.techtarget.com/definition/CAPEX-capital-expenditure
A capital expenditure (Capex) is money invested by a company to acquire or
upgrade fixed, physical, non-consumable assets, such as buildings and equipment
or a new business.
There are two types of Capex those that are invested in to maintain existing levels
of operation within a company and those that are invested in something new to
foster future growth. Customarily, regardless of the manner of investment, Capex is
money spent with the intent of initiating future cash flow and a substantial return on
investment (ROI).
Capexs counterpart, operational expenditures (Opex), refers to the day-to-day
costs of operation. A similar but not closely related term, forex, stands for foreign
exchange.
http://www.propellerclub.gr/files/OpCost_Presentation_MrBob_Maxwell.pdf
opex ship management view