A strong outlook: An investor's guide to Diana Shipping Inc. (Part 7 of 10)
As we’ve discussed before, maintaining a low operating cost is essential to a shipping company’s success, because, unlike voyage expenses, vessel operating expenses are what a company can actually control. To properly evaluate Diana Shipping’s operating efficiency, we can look at its vessel operating expenses and analyze how they affect net income.
Vessel operating expenses: The benchmark for operating efficiency
Generally, vessel operating expenses include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance, and repairs, which are relatively fixed costs compared to vessel expenses.
In contrast with time charter equivalent revenues, vessel operating expenses vary substantially from company to company due to their own operating management. Plus, if Diana Shipping has lower operating costs compared to its peers, its return on new ship purchases will be much higher.
Although the table above suggests growing vessel operating expenses, we can’t conclude that Diana lacks efficiency, because the increase in operating expenses may be attributable to fleet expansion. Also, we need to compare Diana Shipping’s operating performance to its peers’ for a better understanding.
Browse this series on Market Realist: