The following case study is based on the attached excel sheet, which has been set up in a dynamic approach. This means that the four underlying scenarios (25 years with and without tax and 15 years with and without tax) are linked to separate sheets, which enables the user of the model to calculate the net present value (NPV) for the different scenarios with ease. This is why we refrain from explaining every single step of the underlying calculation. In order to get a more detailed understanding of the various calculations, the reader of this analysis is welcome to have a closer look at our model.
1. Do you expect the daily spot hire rates to increase or decrease next year?
Although we expect the iron ore exports to take off in the next few years, our expectation as to next year`s spot rate is rather pessimistic. This is mainly due to the decrease of the demand in iron ore vessel shipments highlighted in exhibit 5. Meanwhile there will be a delivery of 63 new vessels next year, which are bigger and more efficient, leading to lower costs generated from the perspective of the shipping company as fewer ships are needed to deliver the same amount of cargo.
2. What factors drive average daily hire rates?
As the daily hire rates are mainly driven by supply and demand of shipments, the economic outlook plays a key role in determining the prices charged. The demand for iron ore and coal markets takes up over 85% of the cargo carried by capsizes. The higher the demand for those products, the higher the daily hire rates could be charged. As the demand for capsizes is influenced by the distance between the supplier and demander, another factor influencing the daily hire rates is the change in trade patterns. The last factor influencing the daily hire rate is the age of the vessels because the newer the ships are, the more efficient and less costly they will be.
3. How would you characterise the long-term prospects of...