Ocean Carriers
Ocean Carriers Case
Expectations for Daily Spot Hire Rates
Next Year
Iron ore and coal imports will most probably decrease the upcoming year
With the increasing supply of vessels should result in a market surplus
By creating this surplus, prices will be driven down, since we will have limited demand and suppliers competing
Average daily rates, based on historical numbers, have a direct relationship with the number of shipments.
What Factors Drive Average Daily Hire
Rates?
u
Daily hire rates were determined by supply and demand
u
Supply includes all those used in previous year, plus new vessels purchased minus all scrapped vessels
u
New vessels usually were bigger and more efficient, hence fewer ships were needed to carry the same amount of cargo
u
All factors such as age of vessel, size and costs of repair and maintenance come into play in this case
u
Demand was changing due to shipping capacity. When it was high than the use of the vessel was longer. When it was low, then more scrapped would occur
Long Term Prospects
Company policy not to operate ships older than 15 years
Growth in the iron and ore markets
Demand for capsizes to be high; increased exports of iron and ore u Uncertain on expected hire rates
Rise in Australian and Indian ore exports
Trade volumes higher: Need for new vessels to carry the increase in shipments
Should we buy the carrier for 25 years?
We will discount all of the Cash Flows at a rate of 6 percent
We will only accept a positive NPV for the carrier
We will reject a negative NPV for the carrier
Hong Kong charges a tax rate of zero
The United States will charge at a rate of 35%
Hong Kong- Tax Free Environment
h Flow +
Inv. Cash Flow
=
Net Cash Flow
2,483.69
$
(34,805,887.40)
=
$
Expectations for Daily Spot Hire Rates
Next Year
Iron ore and coal imports will most probably decrease the upcoming year
With the increasing supply of vessels should result in a market surplus
By creating this surplus, prices will be driven down, since we will have limited demand and suppliers competing
Average daily rates, based on historical numbers, have a direct relationship with the number of shipments.
What Factors Drive Average Daily Hire
Rates?
u
Daily hire rates were determined by supply and demand
u
Supply includes all those used in previous year, plus new vessels purchased minus all scrapped vessels
u
New vessels usually were bigger and more efficient, hence fewer ships were needed to carry the same amount of cargo
u
All factors such as age of vessel, size and costs of repair and maintenance come into play in this case
u
Demand was changing due to shipping capacity. When it was high than the use of the vessel was longer. When it was low, then more scrapped would occur
Long Term Prospects
Company policy not to operate ships older than 15 years
Growth in the iron and ore markets
Demand for capsizes to be high; increased exports of iron and ore u Uncertain on expected hire rates
Rise in Australian and Indian ore exports
Trade volumes higher: Need for new vessels to carry the increase in shipments
Should we buy the carrier for 25 years?
We will discount all of the Cash Flows at a rate of 6 percent
We will only accept a positive NPV for the carrier
We will reject a negative NPV for the carrier
Hong Kong charges a tax rate of zero
The United States will charge at a rate of 35%
Hong Kong- Tax Free Environment
h Flow +
Inv. Cash Flow
=
Net Cash Flow
2,483.69
$
(34,805,887.40)
=
$