REPORT ON CAPESIZE PURCHASE
FOR OCEAN CARRIERS
The purpose of this report is to evaluate whether Ocean Carriers Inc. should immediately commission a new capesize carrier that would cost $39 million, and would be completed two years hence, in order to finalize a lease of the ship for a three-year period with a potential charterer in very good faith. The contrasting tax regulations between the two countries where the company locates its office, and the different cost-benefit circumstances under different length of time in service are considered in the analysis. Taking all available information into consideration, we highly recommend that the company should purchase the new capesize carrier, have it registered under the Hong Kong office, and put it on a scheme for a 25-year service. Industry Prospects
Capesize carriers are mainly used to carry iron ore and coal worldwide. The daily hire rates are therefore determined by the total exports of iron ore and coal, the distance between the exporting countries and the destinations, and the fleet size of capesizes in service. According to the market trends, in the next few years, Australian production in iron ore is expected to be strong and Indian iron ore exports are expected to take off. However, imports of iron ore and coal are expected to be stagnant in next two years. Therefore, total exports of iron ore and coal will be flat in the coming two years, and will rise remarkably in the following few years. Besides, as East Asia countries absorb the largest portion of the iron ore imports, the joining of India to the iron ore exporting won’t significantly increase travel distance because Australia is almost the same distance away by water. Moreover, in 2001 and 2002, 63 and 33 new capesize vessels would be delivered adding up to about 17% of total capesizes currently in service. Consequently, in the first two years, the supply of capesizes would be greater than the demand, the daily hire rates are expected...
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