Ocean Carriers

In: Business and Management

Submitted By colemadj
Words 692
Pages 3
Answer to Question #1:

The daily spot rate for 2002 will likely decrease despite the 2% forecasted growth in worldwide iron ore shipments as 63 new dry bulk capesizes are expected to be delivered in 2001, and 33 in 2002, thereby increasing worldwide supply of capesizes by 11% and 5.4%, respectively. Furthermore the worldwide capesize fleet is relatively young – only 8 capesizes are at least 20 years old – there should be relatively few scrappings.

For example Exhibit 5 of the Ocean Carriers case study shows the direct correlation between the number of shipments of iron ore and the average daily spot rate. From 1995-1996, the average spot rate fell from $20,149 to $11,730 and from 1997-1999, the average spot rate fell from $14,794 to $9,427. Consequently, the iron ore shipments effectuated from 1995 through 1996 and from 1997 to 1999 were stagnant.

Based on the foregoing historical data and trends, one could expect the same result for the time period from 2001 through 2003. One could expect cash flows for the company to decline as a result.

As such, it is economically preferable for ship owners to enter into short term spot market contracts rather than signing long term time charters which would lock them at a low daily rate for an extended time period.

Answer to Question #2:

Average daily hire rates are determined by supply and demand for capsizes and market conditions.

Supply is affected by the number of ships available, plus new ships, minus scrappings, as well as any increases in the size and efficiency offered by newer ships vis-à-vis older vessels; in other words, the condition of the vessel affects the average daily rate as the newer ships are bigger, faster, and more fuel efficient than their older counterparts thereby fetching higher daily hire rates. Demand, in turn, is affected by the world economy, especially in…...

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