Ocean Carrier
Background
Ocean Carriers Inc. is a shipping company specializing in the operation of capsizes bulk dry carriers. In January 2001, Mary Linn, the vice President of Finance for Ocean Carriers was evaluating the purchase of a new capsize carrier for a three years lease proposed by a motivated customer. The leasing contract offers very attractive terms, but no ship in Ocean Carrier’s current fleet met the customer’s requirements. In addition, this proposed contract is only for three years. Therefore, after three years, the new capsize carrier will have to be leased to other customers. So considering in the long run, Linn had to decide whether Ocean Carriers should immediately commission a new ship which could be completed in two years. In the same time, she would have to consider if the company should still follow the policy of scrapping a vessel after 15 years, even though such vessel has a product life of 25 years.
Analysis
There are two main factors would affect the daily spot hire rates which are the number of available vessels and imports of iron ore and coal. From the Exhibit 3 of this case, we know that 63 new vessels were scheduled for delivery in 2001. This number decrease to 33 in 2002 and 21 in 2003. So we can infer that the demand of new vessels is saturated temporary. Besides, with Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years, we can infer the long-term market demand for capsizes will be optimistic, but the imports of iron ore and coal will remain stagnant over the next two years. So daily spot hire rates are expected to decrease next year.
The world economy will determine the demand for dry bulk capsizes, specifically the iron ore and coal markets, since they take up over 85% of the cargo carried by capsizes. The higher the demand for these products, the higher the daily hire rates could be charged. Trade patterns will also affect the demand for capsizes, like the
Ocean Carriers Inc. is a shipping company specializing in the operation of capsizes bulk dry carriers. In January 2001, Mary Linn, the vice President of Finance for Ocean Carriers was evaluating the purchase of a new capsize carrier for a three years lease proposed by a motivated customer. The leasing contract offers very attractive terms, but no ship in Ocean Carrier’s current fleet met the customer’s requirements. In addition, this proposed contract is only for three years. Therefore, after three years, the new capsize carrier will have to be leased to other customers. So considering in the long run, Linn had to decide whether Ocean Carriers should immediately commission a new ship which could be completed in two years. In the same time, she would have to consider if the company should still follow the policy of scrapping a vessel after 15 years, even though such vessel has a product life of 25 years.
Analysis
There are two main factors would affect the daily spot hire rates which are the number of available vessels and imports of iron ore and coal. From the Exhibit 3 of this case, we know that 63 new vessels were scheduled for delivery in 2001. This number decrease to 33 in 2002 and 21 in 2003. So we can infer that the demand of new vessels is saturated temporary. Besides, with Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years, we can infer the long-term market demand for capsizes will be optimistic, but the imports of iron ore and coal will remain stagnant over the next two years. So daily spot hire rates are expected to decrease next year.
The world economy will determine the demand for dry bulk capsizes, specifically the iron ore and coal markets, since they take up over 85% of the cargo carried by capsizes. The higher the demand for these products, the higher the daily hire rates could be charged. Trade patterns will also affect the demand for capsizes, like the