Ocean Carriers

Harvard Business School Case 202-029

To evaluate the finances of commissioning a new ship for charterer following statements are to be considered
1
2
3
Costs
2001
2002
2003
2004
2005
Building cost
39000000 3900000 3900000 31200000
Discount rate - 5%
Inflation - 1%
Present value of investement for comissioning of new ship
35913605.4421769
Overall cost parameters for new shift
No. of days maintenance days
8
8
8
Available days
357
357
357
Cost of operation/day
4000
4160
4326.4
Cost of operation/year
1460000 1518400 1579136
Total cost of operation
29234438
Present value of cost of operation
18592805
1324263 1311651 1299159
Present value of cost of survey
428502.4
Investment in working capital
500000
515000
530450
Present value of working capital
5966453
453514.7 444876.4 436402.5
Overall income
Scraping or resale value at 16th year
Leasing rate as per table
Leasing income per year
Present value of leasing
Overall income

2290558

64061694

20000
7140000
6476190

5450885

Basic information
Proposal in 2001
For leasing in 2003
Average carrier size
80,000 to 2,10,000 tonnes
553 in operations in 2001

For a new ship in 2003

Initial expected operating cost - $4000
Annual increase of 1% over inflation
Operating cost for the 1st 3 years with expected rate with new carrier
1 year
1460000
2 year
1518400

20200
7211400
6229478

20400
7282800
5991578

3 year
Average expected Charter rate for 2003

1579136

ments are to be considered

4
2006

5
2007

6
2008

7
2009

8
2010

9
2011

10
2012

11
2013

12
2014

13
2015

8
8
12
12
12
12
12
16
16
16
357
357
353
353
353
353
353
349
349
349
4499.456 4679.434 4866.612 5061.276 5263.727 5474.276 5693.247 5920.977 6157.816 6404.129
1642301 1707993 1776313 1847366 1921260 1998111 2078035 2161157 2247603 2337507
1286786

1274531 1262393 1250370 1238462 1226667 1214984 1203413 1191952 1180600

300000
350000
546363.5 562754.4
579637 597026.1 614936.9
633385 652386.6 671958.2 692116.9 712880.4
428090.1
419936 411937.2 404090.8 396393.8 388843.5 381436.9 374171.5 367044.4 360053.1

18714
6680898
5234658

17283
6170031
4604172

17481
6170793
4385467

17682
6241746
4224659

17886
6313758
4069905

18092
6386476
3920742

17428
6152084
3596996

17628
6152172
3425760

17831
6223019
3300200

18036
6294564
3179183

14
2016

15
2017

16
16
349
349
6660.294 6926.706
2431007 2528248
1169356

1158219

734266.9 756294.9
353194.9 346467.4

18243
6366807
3062543

14762
5151938
2360162

Exhibit 1

Capital Expenditures Anticipated in Preparation for Special Surveys

2007

2012

2017

2022

2027

300,000

350,000

750,000

850,000 1,250,000

Exhibit 3

Current order book for dry bulk capesizes by delivery date

2001

Number of vessels

2002
63

2003
33

2004
21

Exhibit 4

Daily Hire Rate Adjustment Factor for Dry Bulk Capesizes Based on Age of Vessel

Over 24 years 20 to 24 years 15 to 19 years 10 to 14 years

0.65

0.75

0.8

5 to 9 years Under 5 years

1.05

1.15

Exhibit 5

Worldwide Iron Ore Vessel Shipments, Fleet Size and Average Daily Hire Rates for Capesize Charters, 1994-200
1994

1995

1996

1997

1998

1999

2000

Iron ore vessel shipments

375

397

385

424

420

410

440

Fleet size

NA

NA

NA

540

523

523

552

Avg. spot rate

$16,851

$20,149

$11,730

$14,794

$10,105

$9,427

$22,575

Avg. 3-yr charter rate

$18,250

$18,544

$14,079

$16,063

$13,076

$12,626

$15,344

Capesize Charters, 1994-2001

2001E
436
612

Exhibit 6

Forecasted Daily Time Charter Rates for New Capesize Vessel

Age of Ship

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Event Year Calendar Year

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027

Iron Ore
Shipments
(Millions of Tons)
440
436
445
454
463
472
479
486
493
501
508
516
524
532
540
548
556
564
573
581
590
599
608
617
626
636
645
655

% Growth
7.30%
-0.90%
2.00%
2.00%
2.00%
2.00%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%

Avg Daily Charter

Rate
15,344
14,747
15,072
15,403
15,742
16,088
16,273
16,460
16,650
16,841
17,035
17,231
17,429
17,629
17,832
18,037
18,245
18,454
18,667
18,881
19,098
19,318
19,540
19,765
19,992
20,222
20,455
20,690

% Growth
21.50%
-3.90%
2.20%
2.20%
2.20%
2.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%

Adjustment
Factor for
Hire Rate

1.15
1.15
1.15
1.15
1.05
1.05
1.05
1.05
1.05
1.00
1.00
1.00
1.00
1.00
0.80
0.80
0.80
0.80
0.80
0.75
0.75
0.75
0.75
0.75
0.65

Adjusted
Daily Hire
Rate

17,713
18,103
18,501
18,714
17,283
17,481
17,682
17,886
18,092
17,428
17,628
17,831
18,036
18,243
14,762
14,932
15,104
15,278
15,454
14,654
14,823
14,993
15,166
15,341
13,448

Expected
Daily Hire
Rate

20,000
20,200
20,400
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