Ocean Carrier Inc. owned and operated cape-size dry bulk carriers worldwide. Major Cargo type is iron ore and coal. Vessel sizes are 80,000 DWT to 210,000 DWT. Cape-size carriers travel around Cape Horn rather than the Panama Canal due to size constraints. The cargo operations include maintenance, repairs, insurance, supplying of lubricants, maintaining supplies and on board stores. Fundamental Analysis
Mostly chartered on “time charter”basis for one, three, or five year periods. Occasionally spot charter market was used too. Charterer paid a daily hire rate for entire duration. They controlled where the cargo was loaded and unloaded also determined the cargo. Ocean Carriers Inc. supplied a qualified crew along with a seaworthy carrier which complied with international norms. Operating Policies
Ocean Carriers didn’t operate ships which were more than 15 years old. As per international maritime regulations they underwent special surveys every 5 years for seaworthiness the carriers. To avoid these costs they sold the ships in scrap or second hand market before the third survey. Market and Competition
To value the market and competitive environment, we imply the SWOT analysis. Strengths: Since the firm owns new and larger vessels compared to industry, premium is earned compared to market. Weaknesses: Since the firm depends on basic industries too much, it has not much product differentiation and becomes less competitive. Opportunities: Over 85% of ships carry iron ore and coal throughout the world. So the demand for iron ore and coal products is basically depends whether the economy is strong or not, which means a great deal of vessels are needed. Australian production and Indian Exports are creating long term demand. Threats: There is probability of defaulting of Charterer. And further estimates are not entirely reliable. Daily Hire Rate
Depends on the market, shipping companies will decide whether increase the number of ships or rise scrapping. What’s more, the vessel’s life of operation will also affect the daily spot hire rates. As we can see from the table 1-1, the spot charter rates tended to fluctuate more widely than time charter rates, which show the highs were higher and the lows were lower in the spot market.
Table 1-1 worldwide iron ore vessel shipments, fleet size and average daily hire rates for capsize charters, 1994-2001 | 1994| 1995| 1996| 1997| 1998| 1999| 2000| 2001|
Iron ore vessel shipments| 375| 397| 385| 424| 420| 410| 440| 436| Fleet size| NA| NA| NA| 540| 523| 523| 552| 612|
Avg. spot rate| $16,851| $20,149| $11,730| $14,794| $10,105| $9,427| $22,575| | Avg. 3-year charter rate| $18,250| $18,544| $14,079| $16,063| $13,076| $12,626| $15,344| |
Table 1-2 current order book for dry bulk capsizes by delivery date | 2001| 2002| 2003| 2004|
Number of vessels| 63| 33| 21| 9|
Since Mary Linn was estimating in 2002, we can see from the table 1-2 given by the case, the number of vessels in 2001 and 2002 was 63 and 33 respectively. And the supply had risen to 612 million tons. Under an assumption of the shipping demand in 2002 will be 445 million tons, we estimate the supply in 2002 will be 643 million tons(612+(612-552)*33/63). Table 1-3 estimation of ship demand and ship supply
(million tons)| 2000| 2001| 2002| 2001 to 2002|
Ship demand| 440| 436| 445| 2.06%|
Ship supply| 552| 612| 643| 5.14%|
As we can see from the table above, the ship supply rises only 5.14% while the ship amount just rises 2.06%. The ship supply is twice as more as the ship demand which will leads to a decrease in daily spot hire rates in the next year.
Factors of Daily Hire Rate
Factor 1: Supply and demand
The market price of a good is determined by...