Ocean Carriers Inc. was approached in January of 2001 with a contract proposal for the leasing of one of their ships for a term of 3 years beginning in 2003. Ocean Carriers currently has no ship to accommodate the customer. To commission the construction of a new vessel would take 2 years from start to completion. The average rate in the spot market is $22,000 per day. Ocean Carriers deployed a younger fleet than average carriers and generally earned a 15% premium over the average daily rate placing them in position to capitalize in strong economies. However, the industry is volatile and suseptable to extremes both low and high. Many ship owners sought to sign contracts with time charters in order to shield themselves from the swings in the market. The age of the vessel is another key variable in the rate an owner can demand. Younger ships, as mentioned before, generally take in 15% higher rates than the industry average. However, the older ships, roughly 25 years or over, demanded a 35% discount off of the industry average. Location is also a key factor in determining the demand for dry bulk capsizes. The distance between the US and the EU is relatively short requiring a smaller fleet of ships. Whereas, an upturn in demand in the Asian Pacific would require a greater fleet of capsizes in order to accommodate the time required to ship such distances. Ocean Carriers had to concern themselves especially closely on the global economy because demand for dry bulk capsizes is determined by market demand. Over 85% of all cargo is iron ore and coal and demand typically rises and falls with these two commodities. This also informs that the markets for iron and coal heavily influence the capacity for industry growth. Ocean Carriers has 63 new vessels scheduled for deployment in 2001 and stagnant economic growth predicted for the next 2 years with significant growth projected for the third year. This is due to the growth in the Australian and Indian...
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