Thesis - Nigeria's Shipbuilding Capability

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NIGERIAS SHIPBUILDING CAPABILITY:
A COMPARATIVE STUDY OF CONSTRUCTION COSTS
BY
DAVIES UCHEGBU EKWENNA

(REG. No. 89 PM/00009/G)
A Dissertation Subm itted to the departm ent of Project Management Technology

of the School of Management Technology,in partial fulfilment for the
A ward o f a Doctor of Philosophy Degree in Project Management.
FEDERAL UNIVERSITY OF TECHNOLOGY

OWERRI
October, 1998.
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
UMI N um ber 9946634
Copyright 1998 by
Ekwenna, Davies Uchegbu
All rights reserved.
UMI
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DEDICATION
This research work is dedicated to the Almighty God and to the family of my late
father, Pa Daniel Obioha Ekwenna.
"ALL THINGS WORK
TOGETHER FOR GOOD
TO
THEM THAT LOVE GOD,
TO
THEM WHO ARE CALLED
ACCORDING TO W S
PURPOSE"
The Holy Bible.
CERTIFICATION
We the undersigned certify that this work was carried out by Davies U. Ekwenna in the
Dept, of Project Management Technology and is recommended to the post-graduate
school for approval and acceptance for his contribution to knowledge.
Dr C. C. Ntamere Dr. M. U. Anuolam
(Principal Supervisor) (Co - Supervisor)
Dr. G. E. Nwomh
(Co - Supe4rvisor)
Ag. Head,
Dept, of Project Management Technology.
iii
Davies Uchegbu Ekwenna 1998
All Rights Reserved
In carrying out this research work, I owe a lot of gratitude to so many people
who have contributed in no small measure to the succesful outcome of this work. First,
I want to thank Dr. C. C. Ntamere, my Principal Suipervisor for his patience,
contributions and constructive criticism. Many thanks also go to Dr. M. Anuolam and
Dr. G. E. Nworuh, my Co-Supervisors for their help and painstakingly reviewing every
bit of this work. I also acknowledge the invaluable assistance of my Schools Dean,
Prof. (Mrs) T. Y. Obah for her comments on the draft of the manuscript. Valuable
suggestions by Dr. I. C. Ogwude, Dr. O. R. Owen, Dr. E. O. P. Akpan are all
gratefully acknowledged.
I also wish to express my appreciation to the staff and students of the Department
of Naval Architecture and Marine Engineering, the University of Michigan, Ann Arbor,
Michigan, U.S.A. for granting me another opportunity to use their facilities for this
research work. The roll call which is by no means exhaustive includes the Chairman of
the Department, Prof. Bemitsas, Emeritus Professors Benford and Yagle, Profs. Bunch,
Perakis, Moore, Beck, Vorus, the Administrative Secretary, Virginia Konz, and
students: Scot and Avemash.
The management and staff of the shipyards that I visited are hereby acknowledged
for their contribution. These include Engr. (Dr.) N. V. Ozobia, the Chief Executive and
Managing Director of NigerDock PLC, Lagos; Marinette Shipyard, Wisconsin and
National Steel and Shipbuilding Company, San Diego, California, U.S.A. I am also
grateful to the staff of National Maritime Authority, especially Mallam Dikko T. Bala,
Assistant Head of Lagos Zone and Hadjia Aisha Askira, the Librarian for allowing me
use the NMAs library at Lagos office.
iv .
I also want to thank the individuals and organisations that provided the financial
support for my trip to the U.S.A. The World Bank through the National Universities
Commission, Abuja, and my able and indefatigable Vice-Chancellor, Engr. Prof. C. O.
G. Obah who strenuously worked for its implementation.
Many people gave me their encouragement: my friend and colleague Prof. M.
I. Mwufo, Mr. John Lutz, Mr. Tony Ibeh; Mr. B. A. Nzeako and family, my brothers
and sisters, Paul, Henry, Kenneth, Lucy; my family: my wife Rose, and Obinna,
Ijeoma, Chioma and Chika. Many thanks go to Georgenia, Uloeze and Nyema for typing
this manuscript.
I hope that any item, place or person omitted in this acknowledgement will not
be offended, but most of all I want to thank the Almighty God for His unfailing guidance
all the time.
v.
ABSTRACT
This study investigates and determines certain aspects of section 5 of Decree No. 10
of 1987 on the National Shipping Policy. It deals with the relative cost of construction of
comparable vessels in Nigeria and in foreign countries (i.e. USA. U.K. Japan, and S.
Korea).
The Nigerian shipping industry has always been'saddled with the problems of ship
acquisition costs, of where to purchase ships and of the long-term need to resolve ship
shortages estimated at 3 million deadweight in the national merchant fleet.
The major thrust of this study is the estimation of new ship construction costs based
on a comparative study among the notable shipbuilding nations named above. Basic ship
design was utilized in the determination of major ship characteristics permitting the
preparation of initial cost estimates. Costs were addressed through cost estimation, the
process by which the investment and operating costs of transportation systems are predicted.
Two models were used in the course of this study: The Budget estimate model which
evaluates construction costs and the OECD model which gauges the shipbuilding effort in
each of the countries studied.
The study determined that the comparable vessel that meets Nigerian shipping
requirements is the Handysize/Handymax bulk carrier through a careful analysis of Nigerian
shipping characteristics. Significant findings revealed the following construction costs:
$27M (Japan), $25M (U.K.), $24M (U.S.), $22M (S.Korea), and $15M (Nigeria), and then
following shipbuilding effort in Cost/CGT (compensated gross ton), $ :2 ,121 (Japan), 1.964
(U.K.), 1,886 (U.S.), 1,729 (S.Korea), and 1,179 (Nigeria).
vi
These results are of course indicative of foreign prices lists, which can be used for
assessing where to purchase ships, and for procuring aid in construction. Furthermore these
results show 77% changes in relative cost in favour of Nigeria and implies that
shipbuilding would be a viable project. The government can begin to initiate the next phase of
shipyard development for the economics of ship system construction and operations determines
success or failure, in which small differences in cost between competitors are decisive.
vii
TABLE OF CONTENTS
TITLE PAGE
DEDICATION i
CERTIFICATION ii
ACKNOWLEDGEMENT iii
ABSTRACT iv
TABLE OF CONTENTS vi
LIST OF FIGURES ix
LIST OF TABLES xiv
LIST OF APPENDICES xvi.
GLOSSARY xvii
CHAPTER ONE: INTRODUCTION 1
1.1 Background 1
1.11 Shipping Industry 3
1.2 The Nigerian Maritime Industry 7
1.2.1 National Shipping Policy 8
1.2.2 Shipbuilding Industry 9
1.3 Overview of Ship ConstructionCost 14
1.4 Statement of Problem 17
1.5 Objective of the study 18
1.6 Significance of the study 18
1.7 Scope of study 19
1.8 Limitations 19
1.9 The orgainsation of the Dissertation 20
viii.
CHAPTER TWO: LITERATURE REVIEW 21-90
2.1 Introduction 21
2.2 Historical Perspectives 21
2.2.1 Development of Shipyards 27
2.3 Basic Ship Design Approach and Construction Cost 30
2.3.1 Planning and Scheduling Basic Ship Design 33
2.4 Estimating weights, costs, volumes and hydrodynamics 35
2.4.1 Ship form Definition, Resistance and Powering Relationships 37
2.4.2 Lightship weights 42
2.4.3 Ship-building costs 43
2.4.4 Volume Estimation 46
2.4.5 Transport Capacity: Formulars for Transport Systems 48
2.5 Economic Criteria 49
2.5.1 The Cost of Acquisition 50
2.5.2 Ship Prices and Capital Costs 51
2.5.3 Operating Costs and Components 54
2.5.4 Voyage Costs and Banker Prices 56
2.5.5 Shipbuilding Financing and Investment .56
2.6 Economic Factors 60
2.6.1 Ship Construction Cost Competitiveness 61
2.6.2 Exchange Rates 63
2.6.3 Shipbuilding Labour Costs 66
2.6.4 Labour Productivity 68
2.6.5 Material Costs 72
2.6.6 Overhead Costs 73
2.6.7 Effect of Subsidies 74
2.7 Measures of Merit 76
2.7.1 Net Present value 77
2.7.2 Yield 78
\
ix.
2.7.3 Average Annual Cost 80
2.8 Computer Applicationsin Basic Ship Design 82
2.9 The Learning Curve 85
2.10 Inflation and Labour cost 89
CHAPTER THREE: METHODOLOGY 91-101

3.1 Introduction 91
3.2 Sources of Data 91
3.3 Methods of Data Analysis 91
3.3.1 Mission Requirements 92
3.3.2 Ship factors 92
3.3.3 Physical Constraints 92
3.3.4 Quantitative Analysis 95
3.3.5 Trend Line Analysis 95
3.3.6 Non-Linear Regression Analysis 96
3.3.7 Measures of merit 97
3.3.7.1 Depreciation 97
3.3.7.2 Yield (or IRR) 98
3.3.7.3 Equivalent Uniform Annual Cost 98
3.3.7.4 Required Freight Rate 99
3.3.7.5 Accuracy Ratio 100
3.3.7.6 Cost per unit of output 100
3.3.8 Learning curve 100
3.3.9 Computer Programmes 101
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 102 - 191

4.1 Introduction 102
4.2 Selection of the Ship 102
4.2.1 Mission Requirements 103
X.
4.2.2 Number and Types of Ship 107
4.2.3 Age profile of the National fleet 108
4.2.4 Demand on ship size ranges HI
4.2.5 Speed 114
4.2.6 Methods of propulsion 114
4.2.7 Determination of major ship characteristics 116
4.2.7.1 Principal dimension 116
4.2.7.2 Cargo 120
4.2.7.3 Propulsion plant 121
4.2.7.4 Superstructure 121
4.2.7.5 Economic considerations 125
4.2.7.6 Operating days 125
4.2.7.7 Days in ports 126
4.2.7.8 Endurance 126
4.2.8 Back Carrier design selection 128
4.2.8.1 Vessel description 134
4.2.8.2 ' General Description and mission 136
4.2.8.3 Main characteristics of the vessel 138
4.3 Shipbuilding Construction Cost Estimates 141
4.3.1 Economic performance 146
4.3.2 Accuracy of construction cost estimate 146
4.3.3 Comparative costs with shipyards worldwide 149
4.4 Inflation and Labour cost estimate 153
4.5 Time of Delivery of the Vessel 156
4.5.1 Basic Trade Requirement 156
4.5.2 Preliminary Designs 157
4.5.3 Bidding/Constricting 158
4.5.3,1 Events, Production planning and scheduling 162
4.5.4 Fundamental measures 170
xi.
4.5.5 Required Information 173
4.5.6 Standardization of Design and Equipment 173
4.6 Shipyard Capability and capacity 175
4.6.1 Shipyard Facility 175
4.6.2 Number of Employee of the shipbuilding sector 178
4.7 Implementation 179
4.7.1 Immediate Take-off of the shipbuilding programme 180
4.7.2 Plan for Implementation 181
4.7.2il The Cradle period; 1999-2003 181
4.7.2.2 ' The Capacity cultivation period; 2004-2008 181
4.7.2.3 Capacity Expansion Period; 2009-2019 182
4.8 Discussion of Results 189
CHAPTER FIVE: SUMMARY, CONCLUSIONS, RECOMMENDATIONS 192

5.1 Introduction 192
5.2 Summary of the work 192
5.3 Summary of * y findings 195
5.4 Conclusions 196
5.5 Recommendations 196
5.6 Areas for further study 200
5.6.1 Number of ships Required in the National Fleet 200
5.6.2 Productivity Improvement Methods 200
5.6.3 Shipbuilding Technology 200
5.6.4 Manpower and Training 201
Bibliography
Appendices
xii.
LIST OF FIGURES
Figure 2.1 Basic Design Spiral 32

Figure 2.2 Building Strategy Route Map 34
Figure 2.3 Breakdown of Bulk Shipping Cost Components 54
Figure 2.4 The Dance of the US Dollar 64
Figure 2.5 Design Model and System Configuration 84
Figure 2.6 Direct Labour-hours vs number of units 87
Figure 2.7 Log-log plot of learning curve for series of identical ships 87
Figure 3.1 Graph of L, B, D, versus Deadweight, DWT 94
Figure 3.2 Graph of DWT to Displacement ratio versus Relative speed, V/L
Figure 3.3 RFR as a Function of Block coefficient and Design,
speed length ratio 99
Figure 3.4 Sensitivity to Freight Rate 99
Figure 4.1 Trend in Shipping Market, Divided in Ship Types 105
Figure 4.2 Construction dollars per DWT adjusted economy of
scale for all ships 113
Figure 4.3 Speed and size ranges for various types of vehicles 115
Figure 4.4 Principal alternatives in the selection ofpropulsion arrangement 117
Figure 4.5 Sensitivity to Freight Rate 133
Figure 4.6 General Arrangement of the Handysize Bulk carrier 137
Figure 4.7 Shipyards relative performances 152
Figure 4.8 The Model Shipyard 161
Figure 4.9 Building Dock Schedule Chart 164
Figure 4.10 Product work Breakdown Structure for the Bulk carrier 166
Figure 4.11 Project Management Organisation 172
Figure 4.12 Gantt representation of steps needed in the first
phase of implementating the bulk carrier service 183
xiii
LISTS OF TABLES
Table 1.1 Analysis o f Nigerias Freight Earnings 4

Table 1.2 Number of ships owned by Nigerian Shipping Co.
since 1990 6
Table 2.1. Brief Shipbuilding History 23
Table 2.2 Shifting Competitive Position of Shipbuilding Nations 25
Table 2.3 Principal Particulars of Ferries 26
Table 2.4 Forecast Bulk Carrier Newbuilding Prices (US |M ) 52
Table 2.5 Forecast Bulk Carrier Operating Costs 55
Table 2.6 OECD and LIBOR Interest Rates, 1980 - 90 57
Table 2.7 Compensation Factors 63
Table 2.8 Movement of Major World Currencies Relative to the
Dollar 65
Table 2.9 Hourly compensation costs for production workers 67
Table 2.10 Sample Location Factors 70
Table 2.11 OECD Member States 76
Table 4.1 Cargo Through-put Handled at Nigerian Ports (Exclusive of
Crude Oil Terminals); 1979/80 - 1)88 104
Table 4.2 Cargo Throughput Handled at Nigerian Ports (Exclusive of
Crude Oil Terminals) 1979/80 - 1988, in percent, % 105
Table 4.3 Ships owned by the Nigerian National Shipping Line 109
Table 4.4 Lifetime in years, divided on ship types 110
Table 4.5 Typical Tanker Dimensions 112
U
Table 4.6 Dimensional Draft Limitations At S^cted Ports 119
Table 4.7 Stowage factors, cubic metre per tonne 122
Table 4.8 Distance Tables - World Ports 127
Table 4.9 Input Data 130
Table 4.10 The Required Rates for Selection of the Bulk carrier 132
x iv
Table 4.11 Principal particulars of the proposed ship types 135
Table 4.12 Principal characteristics of the Handysize bulk carrier 138
Table 4.13 Shipbuilding Cost Estimate and Ship Prices 142
Table 4.14 Building Cost of Nigerian Shipbuilding Industry
(Comparison with US., U.K., Japan and S. Korea in1995) 143
Table 4.15 Ranking according to cost of Construction 145
Table 4.16 Economic Summary 147
Table 4.17 Summary of Economic performance and Operating Data 148
Table 4.18 Comparing the Income per unit of work 150
Table 4.19 HodrLy compensation rates of shipyard labour 153
Table 4.20 Construction Schedule for Seven Handysize/Handymax - 162
Table 4.21 Bulk carrier construction labour allocation 167
Table 4.22 Manpower Requirement 168
XV
LIST OF APPENDICES
Appendix I - The National Shipping Policy. Decree NO. 10 of 1987. 208
Appendix II Design and Building Schedules 215
Appendix III - Life - Cycle Cost of the Bulk Carrier 217
xvi
1
GLOSSARY
List of abreviations.
AACE American Association of Cost Engineers
CGT Compensation gross ton
DWT Deadweight tonnes
OECD Organisation for Economic Co-operation and Development
UNCTAD United Nations Conferences on Trade and Development
SAP Structural Adjustment Programme
IRR Internal rate of return
RFR Required freight rate
KaMeWa KaMeWa AB, Kristinchamn, Sweden
NMA National Maritime Authority
M Million
RINA Royal Institution of Naval Architects
SNAME Society of Naval Architects and Marine Engieers
$ Dollars U.S.
U.S. United States of America
U.K. United Kingdom
S.Korea South Korea
List of Symbols
B Shipfe beam, m
CB Block coefficient
CM Midship section coefficient
x v ii.
CP Prismatic coefficient
Cv Volumetric coefficient
CN Cubic number
D Ships depth, m
GM Transverse metacentric height, m
KB Height of center of buoyancy, above baseline, m
KM Transverse metacentric height, above baseline, m
L Ships length, m
T Ships draught, m
A Ships displacement (weight), tonnes
V Velocity, knots
In the review of engineering economy, these symbols and abreviations are applied;
A uniform annual return (revenue less operating costs) or annual payments on a
loan (returning capital plus interest).
A uniform annual return after tax
AAC average annual cost (operating cost plus annual cost of capital recovery)
ACCR annual cost of capital recovery (CRxP)
j CA compound amount factor with single payment (F/P)

i
CRF or CR capital recovery factor (A/P)
CR capital recovery factor after tax (A/p)
DCF discounted cash flow rate of return
F future sum of money
I interest payment
xviii
i interest rate (before tax) per annum compounded annually
i interest rate after tax
L disposal value or salvage value
N number of years, generally the economic life,period of loan, or depreciation
period, also any net present value of all cash flows discounted to the present
NPVI net present value index (NPV I P )
P principal (amfunt of a loan), investment, or present worth of future amount(s)
PV present value of both investment and operating costs
PW present worth factor or discount factor (P/F)
RFR required freight rate
SCA series compound amount factor (F A}
SF sinking fiinUactor (A/F)
SPW series present worth factor (cumulative discount factor); (P/A)
T tax rate
Y annual operating costs (wages, repairs, fuel insurance, over head, etc.)
difference or increment.
UNITS
1 Knot,kt = 0.5m per sec.
x ix
CHAPTER ONE
INTRODUCTION
1.1 Background
The world depends on merchant ships to transport over 80 percent (by weight) of all
international seaborne trade. Shipping accounts for more than 4 billion tonnes of cargo each
year and the total annual tonne-mile exceeds 19 trillion worldwide. Nigerias shipping
market (excluding crude oil) accounts for about 120 million tonne-mile annually (about 0.13
per cent of the world total) and yet plays a very significant role in the nations economy.
Ships facilitate trade and are a very crucial component of a nations competitiveness in
international markets. The shipping industry, worldwide, represents a vital area of economic
activity which plays an overwhelming role in any nations aggregate economy. Apart from
being a major foreign exchange earner, the industry generates substantial employment
opportunities and boosts national income.
The United Nations Conference on Trade and Development (UNCTAD, 1977), in
recognition of this, has indicated that where national investment in shipping can be justified
economically, it should be encouraged as one means of conserving foreign exchange or
increasing the invisible earning capacity of. developing nations with an export/import
potential. For developing countries, foreign exchange earned from international maritime
trade is a major factor in their economic development.
%
A marchant ship is an instrument of transport. It is generally but one link in a system,
encompassing transport from one supplier to some consumer. It exists in order to produce
profitable returns by providing a socially useful service. Ships time in the maritime industry
is extremely valuable. The importance of shipping in the maritime industry can be quantified
through the knowledge of opportunity cost of ships.
The opportunity cost for a US flag vessel on the West Coast of USA could be
$25,000 a day or about $1,000 per hour. With this knowledge, it is also possible to estimate
the freight earnings or gross revenue Nigeria would earn In her international seaborne trade
as follows:
Revenue per day $25,000
Ship operating days per year 350.... Benford (1980)
Estimated number of merchant fleet 150.... Useni (1985)
Revenue per day $3,750,000
Total Annual Revenue $1.3 billion
Economic life of ship, years 25
Total Revenue accruable during
economic life $32.8 billion
On the other hand this amount represents lost freight earnings (for non-participation
in lifting her seaborne trade), thereby negatively contributing to the Nations Balance of
Payments.
1.1.1 snipping industry
Shipping is an area in which a country could lose a considerable amount of foreign
exchange through non-participation by the indigenous institutions. Nigeria, a natural
maritime nation has been involved in export/import trade that predates the colonial era.
According to the Central Bank of Nigeria Report on Balance of Payments, (BOP), from 1981
to 1989, the cost, insurance and freight, (C.I.F.) of the goods involved in this trade amounts
to over two hundred billion dollars. From a closer analysis o f the BOP report three salient
facts emerge:
1. Nigeria earned $1.5 billion dollars, that is, 13.6% of the total freight instead
of $4.4 billion (40%) or $5.5 billion (50%) which were possible with regard
to the 1977 Manilla Declaration as well as international maritime practice with
respect to the UNCTAD cargo and revenue sharing formula of 40:40:20.
Table 1.1, an Analysis of Nigerias Freight Earnings, 1981 - 1989 illustrates
these facts.
2. Nigerian Flag Ships constituted only 13.8 percent of the ships that entered
Nigerian ports in 1987 (NPA Bilingua Report, 1989).
3. Nigerian Flag Ships lifted less than 12 per cent of the cargoes generated by
the nations economy (Gwadebe, 1987).
Hence it has been evaluated (Useni, 1985) that there exist in the countrys shipping
industry imbalance in the areas of:
* Freight earnings/conservation - loss of revenue through non-participation

of indigenous shipping companies,
* Ship-ownership, only one ship is owned by the National Unity
Line, and
* Cargo-sharing Less than 40% of Cargo carried by Nigerian
ships.
TABLE l.l
ANALYSIS OF NIGERIAS FREIGHT EARNINGS, 1981-1989 N Million
Year Credit Debit Total %Earnings 40% 50%

of Freight Potential Potential
Earnings Earnings
1981 276.9 1,284.8 1,561.7 17.6 624.68 780.85

1982 125.1 753.9 879.0 14.23 . 351.60 439.5
1983 107.1 671.8 778.9 13.75 311.56 389.45
1984 135.5 446.8 582.3 23.27 232.92 291.15
1985 154.3 544.0 698.3 22.10 279.32 349.15
1986 99.0 405.5 504.5 19.62 201.8 252.25
1987 48.1 1.175.4 1,223.5 3.93 489.4 611.75
1988 422.0 1,687.9 2,109.9 20.0 843.96 1,055.0
1989 134.8 2,618.9 2,753.7 4.90 1,101.48 1,377.0
Total 1.502.8 9.589,0 11.091.8 13.55 4.436.72 5.546.0
Source: Calculated from Digest of Statistics, 1989.
The deteriorating economic condition and the adverse impact of the structural
adjustment programme, (SAP), that was started in June 1986 aided the decline in the
purchase of foreign-built ships, to meet Governments estimated demand tor ISO new ships
in the national fleet (Useni, 1985).
Faced with the issue of resolving the domestic ships demand, the shipping industry is
confronted with the determination of ship acquisition alternatives and cost estimates of the
following:-
Conversion of existing ships. There are virtually no ships and that number in
the national fleet to convert as the following analysis would portray:
By 1994, there were about six shipping lines with "National carrier status in
Nigeria, namely, the Nigerian National Shipping Line (NNSL), Brawal
Shipping Company (Nigeria)Ltd, Bulkship (Nigeria) Ltd, African Ocean
Lines, Niger Brass and Nigerian Green Lines. Table 1.2 below shows the
number and deadweight of ships owned by Nigerian shipping companies since
1990. During 1994, five vessels belonging to the NNSL were disposed of for
being old and uneconomic. Some vessels could not sail for lack of insurance
cover and others were under arrest by foreign creditors. To address the
numerous problems facing NNSL, a retonnage programme was designed.
NNSL became bankrupt in 199S. The remaining vessels and their assests were
liquidated. A new company, the Nigerian Unity Line was established with a
container vessel, MV Abuja, 6270 DWT purchased at $20 million from
Poland (VANGUARD, 1998), that is the only vessel belonging to the national
merchant fleet.
Charter of existing ships. This entails unaffordable foreign exchange
implications for chartering foreign-flagged ships. The opportunity cost of a
US-flagged vessel is about $25,000 a day or about $1,000 per hour (DiElsi,
1989). For a projected 150 ships in the national fleet it would entail about
$1.3 billion in freight revenues paid to foreign operators. Moreover the
country cannot rely on foreign operators in times of national emergency or
war, exemplified during the Nigerian civil war, 1967-1970; the refugee crisis
in Ghana in 1970; Equatorial Guinea in 1975, and more recently during the
Liberian civil war (1990-1995).
Purchase of existing ships. This is cost-prohibitive since a 20,000 DWT bulk
carrier from the Far East ship-builders would sell for about $30M in 1990 and
expected to cost $S0 million in the year 2000 (Carson and Lamb, 1990.)
TABLE 1 .2
NUMBER AND DEADWEIGHT OF MERCHANT SHIPS OWNED BY

NIGERIAN SHIPPING COMPANIES SINCE 1990
Zfune o f Shipping Line 1994

1990 1991 1992 1993
No. of Ship Total DWT No. of Ship Total DWT No. of Ship Total DWT No. of Ship Total DWT No. of Ship Total DW!
Nigerian National Shipping 13 192.000 13 192,000 13 192.000 13 192.000 9 132,000
African O c e a n Line - - - - - - - - -
Bulkship 1 33.770 1 33,770 1 33,770 1 33,770 1 33,700
Niger Brass 1 16,000 1 16,000 1 16,000 1 16,00 1 16.000
Brawal Shipping Lines 1 12.000 1 12.000 1 12.000 1 12.000 1 12.000
tigeria G reen Lines 1 11.808 1 11,808 - - - - - -
TOTAL 17 265.578 17 265,578 16 253,770 16 253,700 12 193,770
SOURCE: SURVEY BY THE NV1A RESEARCH, PLAWING & STATISTICS EEPT, 199 4.
* New construction. Ship prices are higher than new construction costs, and
O
they follow commdity prices. So it might be plausible to consider
constructing these ships both locally and abroad.
1.2. The Nigerian Maritime Industry
In the past two decades, Nigeria has experienced a steady growth in its economy
whicii raised the demand for international trade wHich in turn created a predictable and
steadily growing, derived demand for marine transportaion services, hence shipyard services.
This implies that the demand for particular ships and shipping services evolved with positive
changes in the patterns of trade.
A ship operator that perceived such a change in demand would respond in the
i following ways:
1. In the short term by increasing the utilization and efficiency of its

ships.
2. By a chartering or purchasing decision that would constitute a quick
response to emerging demand, and
3. In certain circumstances by building new ships to address a long term
increase in trade (Zein and Hillman. 1994).
Nigerian ship owners have been involved in the first two options namely: by increasing the
utilization and efficiency of its ships and chartering and purchasing arangement. The
Nigerian-flag merchant ships have constituted less than 12 percent of the tonnage calling at
the domestic ports and earned less than 13 percent of die freights over the years.
The Federal Government has estimated that in order to be able to earn about 50
percent of freights based on the UNCTAD 40:40:20 cargo sharing formula, the national fleet
requirement should be increased by an estimated 3 million DWT, an addition of 150 new
ships. Buying these could be cost-prohibitive. The long-term solution could be met by
building cheaper vessels locally as implied bt the National Shipping Policy Decree 10 of 1987.
1.2.1 National Shipping Policy
Faced with the problem of ship shortages and lack of the desired tonnage in the
national fleet, the Nigerian Government promulgated the National Shipping Policy Decree
No. 10 of 1987. This Decree was designed to correct the imbalances in the shipping industry
and to ensure expansion and stabilization of the maritime trade. Its major objective is
development in shipment (freights) vis-a-vis seaborne trade and acceleration of development
in seaborne transportation. Section 5 of Decree N o.. 10 sets out special functions of the
National Maritime Authority (NMA). These functions relate to the subject of this research
work and include determination of:
1. Bulk cargo carrying services for the purposes of promotion, development,
expansion and maintenance of the foreign commerce of Nigeria, the national
defence and other national requirements provided by Nigerian Flag vessel
whether or not operating on a particular ocean service, route or line;
2. The type, size, speed, method of propulsion of vessels which should be
employed (in the National Fleet), etc.
3. The relative cost of construction of comparable vessels in Nigeria and in
foreign countries.
4. The number, location and efficiency of shipyard existing on the date of the
promulgation of this Decree or thereafter built in Nigeria.
The overall question is, how can this transportation problem be solved economically?
In other words, how many ships would be employed and what would be their dimensions and
speed so that transportation costs can be minimized? Are there avenues towards ensuring
Nigeria's competitiveness in the maritime industries, especially shipbuilding in the coining
years, and with respect to some foreign maritime nations such as the U.S., U.K.. Japan, and
South Korea? The challenge is the planning and development of Nigerias commercial ships
for the future in order to resolve both domestic and international shipping needs. Constraints
such as limitation of draughts at the terminal ports influence the design of the ship. Sound
naval architecture and marine engineering need to be employed to overcome this problem
with appropriate ship designs, to achieve construction costs of comparable vessels in Nigeria
and in some foreign countries named above.
The aims stated above are discussed in this thesis, and the intent here is also to
highlight changes in relative ship construction costs among some shipbuilding nations, the
benefits and the potential impact on prospects for Nigerian shipbuilding tomorrow. With
abundant human resources, low wage rate, cheap energy, budding iron and steel complex,
and high labour productivity among other factors, Nigerias prospect of building ships for
its domestic market seems bright. Having executed notable projects since 1970, that include
Ports development, extensive modern road network, petroleum refineries, petrochemical and
liquefied natural gas complex, dams etc., Nigerias labour productive factor of 2.22 can be
adjudged to be high when compared with those of developed and emerging nations
(Humphreys, 1993):
US = 1.0 Argentina = 1.30-2.60
Austria = 1.57-2.10 Japan = 1.00 - 2.00
It has been observed that in the Third World, cheap-labour shipbuilding industries are
becoming more effective in high volume standardised production (MARAD, 1984). It is
envisaged that Nigeria like China and South Korea would join the shipbuiding world as a
low-cost builder.
1.2*2 Shipbuilding Industry
Shipbuilding can truly claim to be one of the worlds oldest industries that still
produces the same basic product, a device which transports people o r c a r g o a c r o s s w a te r
from one place to another. That is the only similarity between the primitive dugout canoe and
todays merchant vessels and warships. The methods used to produce the ships have also
obviously changed with advances in technology and materials (Nielsen and Lamb, 1995). The
change in the past few years has mainly been the emergence of technology in both methods
and management to replace the traditional art that shipbuilding had been until then.
with permission o f the copyright owner. Further reproduction prohibited without permission
With this background, several major trends dominate recent shipbuilding history.
Perhaps foremost are the dual trends toward larger and more specialised vessels. Whereas
the technology for building these ships arose through evolution, in the form of longitudinal
framing techniques, welding, superior steels such as high tensile steels, etc. The justification
for building them arose out of rapid economic growth following the Second World War and
also the closure of the Suez Canal in 1967 after the Arab-Israeli War, and also the hiking of
crude oil price by the OPEC in the 1970s following the Arab Oil Embargo. Trade growth
strained existing transportation and port resources, demanding that larger ships be built and
superior means of cargo handling be created. Thus there arose the containership, the pure
bulk carrier, the car carrier, the supertanker, and the various other ship types characteristic
of todays shipping markets (Landsburg, et al, 1990).
Obviously, they did not just materialise, but the need for them, once established, was
quickly met, and the early version of these ships are in many ways remarkably similar to
their current, refined forms. Another major development has been the gradual demise of
the steam engine in favour of the slow-and medium-speed diesels. Diesel engines have been
used for maritime purposes throughout this century. However, it has largely been since the
Second World War, and particularly following the surge of oil prices in the 1970s, that
diesels have truly come to dominate.
Labour-saving technologies also represent another major trend, and perhaps the most
actively advanced. Crew sizes have fallen rapidly in the last two decades to a point where
ship designers can envision crews of five or fewer men,, through automation support, with
the German Ship of the Future (SdZ) programme playing the leading role (Paetow, 1987).
Colett (1981) points out that much of modern shipping is linked to innovations
pioneered to move cargoes and build ships in the Second World War. These include roll-
10
on/roll-off (RO/RO) and lighter-aboard-ship (LASH) designs, cargo unitization, and basic
tools of today such as electronics, computers, radar, satelite communications and navigation,
gas turbines, and full scale ship welding. Moreover, the war permanently changed world
trading and economic patterns and thus helped open the way for economic boom that
followed.
Nomura (1994) states that there'are three factors, namely, productivity, technological
competence and shipbuilding costs that are all inseparably connected with shipbuilding.
Productivity is an issue that cannot be ignored when a comparision is made between the
shipbuilding industries. Productivity is generally expressed in terms of shipyard workers
man-hours expended on such shipyard work as hulls and fittings which are required for the
construction of the ship, man-hours per 1 GT (Gross ton), man-hours per ICGT
(Compensated Gross Tonnage) or man-hours per one tonne of steel materials. Due to learning
experience and investments on productivity improvement, there is no significant difference
in productivity between one shipyard and the other. Equally important to improve
productivity is the technological competence which serves as the basis for the development
of design and engineering capabilities.
Today there is the globalization of maritime industry with the globalization of business
and trade. Shipbuilders, ship operators and suppliers now view the international markets for
services with great interest and success. Technological, financial, and political forces have
contributed to the globalization of the maritime industry. Increasingly, the marketing and sale
of shipping and shipbuilding services are undertaken on a worldwide basis (Zeien and
Hillmann, 1996). Shipyards must decide which of these technologies will be essential to the
viability of their operations and which represents an unnecessary drain on their resources.
11
. Generally, the contract prices for newbuildings are determined based on the ship
prices prevailing in the shipbuilding market. The presentation of an initial price indication
is made based on the shipbuilding cost arrived at by taking into account various factors,
including estimated escalation in wages and commodity prices - namely costwise price.' The
shipbuilding cost is composed of material costs, manpower costs and such expenses as design
and indirect costs. Ship prices could be arrived at by adding such factors as interest and-non-
operating expenses to the shipbuilding cost. On the other hand, the labour (manpower) cost
to be included in the shipbuilding cost is derived by multplying total man-hours by the unit
hourly wages.
Many researchers (Zeien,, 1996; Carson, 1990; Landsburg, 1990) agree that shipyards
in the industrialised countries, especially OECD member states remain high-cost producers
compared to Developing Countries due primarily to their high hourly wage rates.
Shipbuilding is a labour-intensive industry. Hunt and Butman (1995) state, therefore,
if governments do not interfere, it should not be surprising to find that successful
shipbuilding nations are those with the lowest-paid workers, provided with the needed
technology. During the decades from 1960 to 1990, Japan and then South Korea became the
major would shipbuilders due primarily to favourable labour rates. In 1990s, the United
States has had favourable rates and therefore on opportunity to re-enter commercial
shipbuilding, which it has abandoned in the early 1980s as a result of high wage rates. Some
analysts are optimistic that China will become the worlds major shipbuilding nation at the
beginning of the twenty-first century.
Since 1986, Nigeria had joined the shiprepair services with the commissioning of a
ship repair yard, NIGERDOCK in Lagos, and had been constructing ferry boats and offshore
mooring buoys at lower costs. In course of this study, it would be pertinent to examine the
effect of Nigerias low wage rates on the construction cost of merchant ships.
12
Ship prices from OECD nations are bound to rise higher when they terminate their
shipbuilding subsidy practices by early 21st Century. However, developing countries
including Nigeria, in general, are characterised by relatively low living standards and labour
costs, as well as an awareness of contributions that an aggressive shipbuilding industry can
make to a growing economy. For example, the experience of Japan during the 1950s and
1960s provides a dramatic demonstration of shipbuildings contribution to economic
expansion. The Japanese shipbuilding industry led the way in rebuilding the Japanese
industries and economic base following the World War II. Government assistance should be
available to industries within this group of countries, because of the perceived benefits to the
national economy. Accordingly, this group of countries should be placed on a firm footing
to face tough price competition.
Shipbuilding apart from shipping is another segment of the maritime industry that
reflects conflict between economic thinking and government policy. The allocation of $20
million by the Federal Government to the Ship Acquisition and Ship Building Fund (SASBF)
administered by the NMA is mere pittance compared to the acquisition cost of $20 million
for a 20,000 DWT bulker, acquisition of 150 new ships, and far less than the credit of up
to 80% of the vessel price based on standard OECD financing terms. Nigerias shipbuilding
industry has only developed to the stage of boat repairs and maintenance but could be
encouraged to develop to the state of resolving its long term need for ocean going vessels for
its international trade. The innovations, economic factors expecially wages and subsistence,
technology, human can be applied carefully to provide the.right relationship to effect a-long-
term, sustainable reduction in ship construction costs locally.
Storch, et al (1992) summarize the shipbuilding process involving these specific
stages:
13
. development of owners requirements (market characteristics)
* Preliminary/concept design (basic design)
* contract design
* bidding/contracting
* detail design and planning
* construction.
1.3. Overview of Ship Construction Cost
The economics of ship system construction and operations determines success or
failure. Pertinent lessons learnt through a careful review of technological trends in the more
advanced maritime nations could be adapted to achieving successful shipyards that optimize
designs to minimum construction costs.
Adequate ship construction costs are fundamental to the successful planning and
execution of commercial maritime ventures and govern the requirements to which commercial
ships are designed, built and operated,(Leeper et al, 1982). This serves as a guide for use by
maritime managers, planners, analysts, naval architects and marine engineers.
In shipbuilding, the cost estimating methods and degree o f detail of evaluation
vary considerably from broad market estimates to detailed engineering calculations. AACE
International defines three types of cost estimates: Order-of-magnitude, budget, and definitive
(Humphreys, 1993).
Order-of-magnitude estimates are generally based on cost-capacity curves and
cost-capacity ratios and do not require any preliminary design work. They have
an expected accuracy between +50% and -30%. The reasons for this type of
with permission of the copyright o w ne r Further reproduction prohibited without permission

estimates include feasibility studies, selection from alternative designs, selection
from alternative investments, budgeting or construction forecasting.
Budget estimates are based on flowsheets, layouts, and preliminary equipment
descriptions and specifications. Design generally must be 5 to 20% complete to
permit such an estimate to be performed. They have an accuracy range of 30%
to -15%. They are for budgeting or construction forecasting and authorization -
partial or full funds. Budget estimates were used in this study.
Definitive estimates required defined engineering data, such as site data,
specifications, basic quotations. Design is generally 20 to 100% complete, and
estimate accuracy should be within +15% to -5%. They are used for
authorization - full funds, check of an authorized project, and presentation of
bids.
Ship cost is the cost incurred by the builder for construction. Price is what the builder
charges for the vessel. Price trends are difficult to analyze because the market is variable.
Ship construction costs are also influenced by many factors, including
(a) Material, labour and yard general expenses:
differences between countries
differences between yards in the same country,
and for export discounts.
(b) Vessel design:
Yard stock design,
modified stock design,
prototype design, and
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previously yard building experience with design.
(c) Time to construct vessel.
(d) Number of identical ships included in an order.
(e) Yards previous experience with owner (change orders, force majeure,
settlements, guarantee claims, etc.)
(f) Owner-specified classification and regulatory
requirements.
(g) Difference between yards.
Different types of ships also require different amounts of materials, and labour hours
vary significantly depending on complexity of the assembly. However, the Organisation for
Economic Co-operation and Development (OECD) has developed approximate means of
gauging shipbuilding effort for different types of ships in the desire to equitably measure the
shipbuilding work of various shipbuilding nations. While the OECD man-hour adjustments
for complexity are based on averages from many shipyards, the individual yard productivity
for a ship type does not vary significantly.
Designing the physical system or organisation which will
be successful in the shipping market pre-supposes that market research be conducted. This
is to reveal the demand for a service. Demand may be dependent on general market or
linked to specific customers or group of customers. A concrete set of information forms the
basis for evaluating the market research. The major types of information needed to design
sea transport systems include such specifications for:
- Required transport capacity
16
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- Transport distance
- Frequency of call
- Type of commodity
- Cargo treatment requirements
- Limitations set by physical, commercial and political constraints.
- The capacity of, and constraints imposed by existing plant which will
eventually be included in the system.
Changes in relative cost structure in the shipbuilding industry worldwide are only a
part of the competitive environment; however they have a large potential impact on the
prospects for Nigerian shipbuilding in the 1990s and 21st Century.
1.4. Statement of Problem
The Nigeria is losing a great deal of revenue by continued non-participation in the
maritime industry. In Nigeria, there is considerable revenue to be harnessed in terms of
maritime business, which is currently in the hands of foreigners. The Nigerian maritime
industry has always been saddled with the problem of ship acquisition. It is necessary to
explore options especially those which bring about indigenous participation in the maritime
indusrty. The NMA has been trying to address the situation with the implementation of a
Shipping Policy and the Ship Acquisition and Ship Building FUND (SASBF). To further
support the NMA, it is crucial to "obtain construction costs of comparable vessels from
foreign countries and Nigeria, and more especially examine the impact of shipbuilding wage
rates on construction costs. This will assist in deciding the ship acquisition cost.
17
I
1.5. Objectives of the Study
The purpose of this study, therefore, is to estimate construction cost for an ocean
going bulk-carrier in the desire to equitably measure the shipbuilding work of some
shipbuilding countries namely the U.S., U.K., Japan, South Korea and Nigeria. This practice
assures that ships are procured from a low-cost bidder. Specifically, the objectives of this
research are to estimate;
1. The relative cost of construction of comparable vessels in Nigeria and in
foreign countries (i.e. U.S.A., U.K., Japan, South Korea).
2. The type, size, speed, method of propulsion and other requirements of vessels
which should be employed (in the National fleet), etc.
3. The shipping market niche or target product mix for the Nigerian shipbuilding
industry.
In so doing, the study intends to answer some aspects of the challenges raised by the National
Shipping Policy of 1987, Section 5. [see Appendix 1].
1.6. Significance of the Study
These research findings would become increasingly important as a basis for informed
decision-making by the government, industry, research scholars, and investors in the context
of the emerging emphasis of SAP on the deregulation of international shipping and
development of commercial shipbuilding. With such significant reductions in vessel
acquisition cost, opportunities, therefore, exist for near-term investments in domestic
shipbuilding.
18
1.7. Scope of Study
This research work is devoted to the study of the Nigerian shipping industry, shipment
potential of the economy, and the estimation of shipbuilding costs with the implication for
planning and development of Nigeria's shipbuilding industry. Its focus is on the cost of
construction of comparable merchant vessels in Nigeria and in some foreign countries namely
the United States of America, United Kingdom, Japan and South Korea. This study also
concentrates on the basic shipbuilding stage, which results in construction cost estimate,
useful for comparing alternatives during a preliminary study.
1.8. Limitations
Because of the stage of shipbuilding in this country, estimates of time of construction
of vessels and quality of the ship product were based only on preliminary designs. However,
effort was made to collect data from a large number of well established shipyards around the
world. The data is therefore considered representative enough to satisfy most Nigerian
conditions.
19
1.9. The Organisation of the Dissertation
Chapter One discusses the Statement of the problem. Objectives of the Study, Scope
of the Study, Limitations etc.
Chapter Two deals with the Literature Review, traces the history of shipbuilding up
to the present. The concept of basic design in the Design Spiral is used to estimate ship
construction costs as a pre-requisite to planning and development of shipbuilding.
Chapter 3 describes the mission requirements through the analysis of the shipping
market. It further describes the basic design in the overall design process. The basic design
consists of the concept design which translates the mission requirements into naval
architectural and engineering characteristics, and the preliminary design, which further refines
the major ship characteristics affecting cost performance. Alternative designs which satisfy
the mission's requirements are considered. Designs should be finished within a limited
interval. To overcome this difficulty, computer programmes were applied to accomplish the
conceptual or initial design rapidly and exactly. The measure of merit used in selecting the
optimum ship is the Internal Rate of Return (IRR).
Chapter Four discusses the results obtained from the study. The selected basic design
$ is then used in estimating approximate construction costs among shipbuilding nations. These
results would determine whether or not to initiate the next level of development, contract
plans and specification.
Summary, conclusions and recommendations are contained in Chapter Five.
20
CHAPTER TWO
LIOTMHRE REVIEW
2.1 Introduction
This chapter deals with the review of shipbuilding worldwide, its technological
developments, the various shipyards and facilities that facilitated the building of ship^
at various times. Project management is identified as the management approach to deal
with problems associated with shipbuilding. Typical shipbuilding and design schedule^
are discussed with the consideration of the basic design as a pre-requisite to the planning
and scheduling of the shipbuilding processes. Basic design steps used in estimating the
construction cost of ships are analyzed.
2.2 Historical Perspectives
Shipbuilding is a very old traditional industry. The practice of shipbuilding
began when early man first tied two or more logs together, weaved a boat stnictun
hacked out a tree to form a log canoe (Konignenburg, I9IHI).
All the early communities of man were based on the banks of rivers or on tin
coastline. Early drawings, paintings, models and tools provide evidence of m an's cmi I
use of water for transport and fishing. They obviously quickly learned that
transport was easy and cheap. According to Lamb (1994) two initial approaches
developed. These were:
1. The dugout in which the builder had little control over the size.
2. C raft built up from buoyant material, such as reeds and bamboo.
21
The development of the ship has been a gradual development rather than a
revolutionary one. The initial step - the discovery that wood floated - was probably by
chance. Although the dugout log eventually with outriggers for stability was a significant
development, logs (and rushes) bound together was the first step into larger craft. Then
developed the light frame work covered with skins. History has designated Noah as the
first shipwright. As primitive wood working tools developed so did the construction of
the ship. Planking replaced skins.
What is known about shipbuilding development is that many nations have been
influential in the evolution of the ship. Table 2.1 gives a brief history of the significant
countries involved and the sequence of shipbuilding development. The need driving this
development as already mentioned is fishing, transportation and exploration. Early
ship-building development took place in early mentioned civilizations. Whether the
Babylonians learned shipbuilding from Chinese or the other way round, it is certain that
the Babylonians influenced the Phoenicians, the pioneer shipwrights of the
Mediterranean (Albell, 1948). Although its origins are not so clear, the northern center
of shipbuilding developed in the Baltic regions about the same time as the Phoenician
development. Due to exploration, plunder and then trade, the two centers eventually
became one. The Venetians improved on the development of the shipbuilding process
and through their influence, Portugal then Spain developed their shipbuilding industries.
History of shipbuilding records that steam-powered iron and steel ships were
being built in large numbers in Europe even while most U.S. shipyards continued to
build wooden sailing vessels in the 19th Century. Ultimately, of course, U.S. shipyards
would be forced to move to steel and steam, but for long time it was quite rational for
individual yards to stick to the older technology. Whereas most available sources of
22
TABLE 2 .1
- > :. BHIEF SHIPBUILDING HISTORY
Crete - 10,000 to 4000 BC Mediterranean seagoing for trade
Egypt - 5000 to 2100 BC Nile River warships
Egypt - 2100 to 600 BC Mediterranean seagoing warships
Phoenicia - 1500 to 331 BC Mediterranean seagoing for trade
Carthage - 800 to 241 BC Mediterranean, Europe and Africa for trade.
Greece - 700 to 146 BC Mediterranean trade and warships
Rome -270 BC to 420 A D Mediterranean, Europe and Africa warships
I Venice -420 to 1500 AD Mediterranean and Europe trade with warships for
protection
Genoa -640 to 1500 AD Mediterranean and Europe trade with warships for
protection.
Vikings - 900 BC to 1066 AD Ships for exploration and war
England -811 to 1850 ADC : Wooden ships for war and trade
Hanse - 1241 to 1660 AD Ships for trade
Spain - 1500 to 1600 AD Ships for exploration
France - 1500 to 1900 AD Ships for war
USA - 1776 to 1875 AD Clipper ships and first sailing ships.
Britain - 1838 to 1950 AD Iron and steel hulled steamships
USA - 1916 to 1919 AD World War 1 emergency fleet
USA - 1940 to 1945 AD World War II emergency fleet
Japan - 1950 to present Developed large ship shipbuilding technologies
Korea - 1980 to present Captured No. 1 shipbuilding
SOURCE: Lamb, T. (1995).
23
with permission o f the copyright owner. Further reproduction prohibited without permission.
wood had been depleted by the nineteenth century in Europe, wood was still plentiful
and cheap in the United Statess of America. Alternatively, the industrial revolution
began in Europe, and Europes ability to fabricate steel and build advanced steam
engines placed it at a comparative advantage in this area.
Many U.S. commodities were low-valued bulks., and were ideal for cheap, slow-
moving sailing ships. Steamships were labour intensive, whereas many U.S. sailing
schooners could be manned with very small crews. Given high U.S. wage rates, this also
recommended the continued building of saling ships in the United States. Thus, early
applications of steam engines were to ships that carried passengers and mails for which
speed was more important than delivered cost. Even then, special government subsidies
were needed in the form of mail contracts to reduce potential risks and lower higher
costs.
Along with the development of shipbuilding hag been the parallel development of
the craftsmen involved. First there were only the shipwrights and riggers. Then iron
workers, palters and riveters. Riveters were replaced by welders. Outfitting trades
increased to cover joiner work, sheet add metal and painting while machinery trades
included machinists, fitters and pipe workers. In some countries the specialization was
carried to extremes and excess damaging demarcation strikes ensued. Today, with
modern building methods, the trend is away from specialization.
Shipbuilding has long been an international industry, with the U.S. building
sailing ships for Britain in the days of the colonies and also after independence (Hall,
1884). Then the British built mechanically powered iron and steel ships for many
countries including the U.S. and Japan wrested the lead from Britain and Europe in the
late 1950s and has kept it since, even though Korea and now China are challenging
24
Japan as the low-cost leaders. Today, shipbuilding is a truly global industry like the
automotive industry where the global corporations have manufacturing plants in many
countries. In the global shipbuilding industry the manufacturing plants of the leaders
are located in single countries. It is their market and customers who are global. Table
2.2 illustrates the shifting competitive position of shipbuilding nations (Carson, J.P. and
Lamb, B. 1990).
On the Nigerian maritime scene, no work has been documented on the
construction of ocean-going vessels. But a good amount of literature abound on coastal
vessels, ferry boats and single point mooring buoys (BobManuel, K.D.H. and Ozobia,
N.V. 1995). Table 2 .3 shows the principal particulars of some ferries built by
Nigerdock Nigeria Pic, bought and operated by public transport companies. This
research work takes some incisive steps to estimate the comparative costs of building
ocean going vessels (the handysize/handymax) in Nigeria.
Table 2.&
Principal particulars of ferries
Ferry A Ferry B
Length overall in 30.45 31.16
Breadth mounted in 6.2 10.0
Depth mounted m 1.75 2.40
Gross tonnage t 1.00+0.05 1.56
Service speed kn 16.6 16.8
Main engine output kW 2x165 2x121
at 2500 rev/min
Vessel type Passengers vehicular/Passengers
Capacity (no of cars/passengers) Nil/280 15/86
Cost of Vehicles US$M 0.568 1.363

When built Year 1991 1994
Source: The Marine Engineer, the Quarterly Newsletter of the Nigeria Branch of
IMER, Lagos. July - September, 1995, pp: 4-10
25
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26
2.2.1 Developm ent of Shipyards
The history o f shipbuilding with the developm ent o f shipyards can be
divided into three distinct periods: (1) prior to World War II, (2) World War II
to 1960, and (3) from 1960 to the present (Storch, et al, 1992). The movement
from the first to the second period coincides with the changeover from rivet
ing to w elding in the late 1930s. The introduction o f flow line techniques was
primarily responsible for the change from the second period to the third. Su
perimposed on the latter was the rapid growth in ship size after closure o f the
Suez Canal in 1967. The characterization o f shipyards built or substantially
altered during these three periods as first -, second -, and their - generation
has been presented by Me Neill (1980).
The developm ent o f group technology and its application to shipbuild
ing have given rise to fourth-generation shipyards. Hyundai Heavy Industries,
also known as H yundai o f South K orea in 1973 constructed its Ulsan yard
capable o f building large ships o f up to 1,000,000 tonnes deadweight (Nomura,
K. 1994). Follow ing the McNeill shipyard classification system, the various
generations also reflect the production, organisation classification system pre
sented by M arsh (1976). Prior to the advent o f welding, shipbuilding was a
craft organisation relying heavily on the skills o f w orkers and little based on
prior planning. The change in the past few years has mainly been the em er
gence o f technology in both methods and m anagem ent to replace the tradi
tional craft art that shipbuilding had been until then. The m ethods used to
produce the ships have obviously changed with advances in technology and
materials. Follow ing the application o f welding, most ships w ere built using
the hulLiblock and the forw ard loading o f w ork areas. Periods o f high-vol
ume, series ship construction including World War 1, World War II, and the
super-tanker building stage, saw the developm ent o f mass production yards.
These had some autom ation, continuous flow, and relatively simple planning
and scheduling.
27
All changes in existing shipyards and the design o f new shipyards are ail directed tow ard
reducing the cost o f building ships by reducing the am ount o f labour required by prov iding advance
p ro d u ctio n facilities and m ethods. A notable innovation in this area is the G ro u p technology
shipbuilding system s based o n the organisation o f w ork into distinct problem areas, using a p roduct-
oriented w ork breakdow n structure, PW BS. T h e process lane concept m arries the w ork organisation
and the physical plant. It also contains asp ects o f planning and scheduling design, m aterial control,
and personnel organisation. T he categorization o f shipyard layout will be presented in term s o f the
prod u ctio n organisation classification show n in Figure 2-1. (M arsh, 1976).
Pre World W ar II
This period had the follow ing features o f out fittings: installation o f po w er plants and
auxiliary m achines w as accom plished for the m ost part, after launch. Rivetting w as the m ajor process
em ployed for jo ining steel plates and parts.
World W ar II - 1960
T he period w as characterized by the Prefabrication o f w eldm ents away from the shipways
and developm ent o f m ore accurate high-technology steel cu ttin g and w elding
Im portant changes during this period include few er shipyards and m ore space devoted to storage and
shop facility, as m ore w o rk w as accom plished aw ay from the erectio n site.
1960-Present
Shipbuilding in the 1960s, w as particularly influenced by specialised ship types, larger
ships and a m ove to series production. E uropean and U.S. shipbuilders began to modify existing yards
to accom m odate this m ass p roduction type o rganisation .
This period also m arked th e in tro d u ctio n o f project m anagem ent as an a p p ro ach to
m anaging shipbuilding project. "Its (P ro je c t m anagem ent) form al beginning are traced back to the
28
Polaris submarine project in the early 1960s (Raz, 1993). Project m anage
ment generally requires specific skills and techniques to deal with problem
related to the following areas: Planning and scheduling tasks and activities,
recruiting, m otivating and developing project staff m em bers; assigning tasks
to individuals and appraising their perform ance, negotiating with groups in
ternal and external to the organisation; assuring quality, dealing with risk and
uncertainty; and other human relations and business subjects. However, the
term project m anagem ent has a more specific and limited meaning, restricted
to the planning and control aspects o f managing projects. P roject planning is
used in this context to refer to the estimation o f ship construction costs (de
rived from basic design) which are fundamental to the successful planning
and execution o f com mercial maritime ventures and govern the requirements
to which com m ercial ships are designed, built and operated.
Project m anagem ent applies the concepts o f general system s theory and
analysis to the task o f management. It seeks to unify the planning and work
efforts o f numerous organisational units to efficiently accom plish with mini
mal trade-off, the multiple goals o f a project.
Virtually every project has a three-dimensional goal: accomplish the work
in accordance with budget, schedule, and performance requirem ent. The bud
get dimension is the specified or allowable cost for the project; it is the target
cost o f the w ork to be done. The schedule dimension includes the time period
over w hich the w ork will be done and the target dates for which it will be
com pleted. The perform ance dimension specifies w hat is to be done to reach
the end-item or final result. It includes the required features o f the final prod
uct (the ship) or service, technological specifications, and quality and quan
tity m easures.
29
The rest o f the-discussion in this ch ap ter provides the-theoretical fram ew ork to
q u a n tify the v ario u s com ponents and subsystem s o f the m arine tran sp o rtatio n sy s
tem (the ship p ro d u ct), culm inating in estim ating the costs o f new ship construction
and quality. T h at is, the three goals o f tim e, cost and perform ance are in terrelated
an d m ust be ad d re ssed sim ultaneously and m ust be given equal em phasis. Project
m anag em ent has evolved as an e ffic ie n t w ay to m aintain focus on all three p ro ject
goals and to co n tro l the necessary trad e-o ffs am ong them . As a system s approach,
p ro ject m anagem ent integrates resources and puts em phasis on the w holeness o f this
p ro je c ts goals, derived though the B asic Ship Design A pproach.
2.3 B asic S h ip D esign A p p ro a c h a n d C o n s tru c tio n C osts
B asic d esig n refers to determ ination o f ship ch aracteristics affectin g co st and
perform ance. T hus, basic design includes the selection o f ship dim ensions, hull form,
pow er (am ount and type), prelim inary arrangem ent o f hull and m achinery, and m ajor
stru ctu re (K iss, 1990). P roper selections assure that the m ission requirem en ts such
as good seakeeping perform ance, m anoeuvrability, the desire speed, endurance, cargo
capacity, and deadw eight are m et. M ission requirem ents in this research w ork w ere
e stab lish ed by stud ying the basic trade requirem ents and shipping m arket an aly sis.
B asic desig n encom passes both concept design and p relim inary design. It resu lts in
the d eterm in atio n o f m ajor ship c h aracteristics, perm itting the p reparatio n o f in itial
c o n stru c tio n co st estim ates.
C o n c e p t D esig n
The co n cep t design translates the m ission requirem ents into naval architectural
an d e n g in eerin g c h aracteristics. E ssentially, it em bodies technical feasib ility stu d
ies to determ in e such fundam ental elem ents o f the proposed ship as length, beam ,
depth, draught, fullness, power or alternative sets o f characteristics, all o f which meet the
required speed, range, cargo cubic, and deadweight. The selected concept design serves
30
as a basic to determine the overall ship acquisition program and to identify candi
date alternative concepts, such as optional types of propulsion plants to be evaluated
in the preliminary design stage.
P relim inary D esign
This preliminary design stage requires a much greater engineering and design
effort than does the conceptual design. Trade-off studies are made during the pre
liminary design stage to evaluate the relative merits of the various alternative ship
systems. This stage further refines the major ship characteristics affecting cost and
performance. Certain controlling factors such as length, beam, horsepower, and
deadweight do not change upon completion of this phase, and provide a precise defi
nition of a ship that would meet the mission requirements, thus providing the basis
for development of contract plans and specifications (Kiss, 1990).
The ship design process is generally considered to progress through four stages,
namely, conceptual design, preliminary design, contract design, and detail design.
Each of these design stages is represented in Figure 2.1 by a band of engineering
activity that is separated from other bands of activity and the required effort to ac
complish each stage.
In the overall design process, basic design is followed by contract design and
detail design. Contract design develops plan and specifications suitable for a ship
yard bidding and contract award. Detail design is the shipyards responsibility for
further developing the contract plans as required to prepare shop drawings for the
actual construction/production of the ship. Both the contract design and detail de
sign are outside the scope of this study but the thrust of this study is to derive con
struction costs from the basic design process.
The procedure used by naval architects and marine engineers to translate the
ship design requirements into specific ship design criteria is described as the De
sign Spiral (Evans, 1959). The design spiral shown in Figure 2.1 is
31
MISSION
R E Q U IR E M E N T S
PROPORTIONS I COST
P R E L . POW ERING T I MATES
L A R G E M ERC H A N T 3HIF
= >Â5E T Y PIC A L E T - C R T
LINES I DAMAGED
BOOY PLAN sta bility C O N C E P T DESIGN 20 -M A N -D A Y S
s
HYORO- CAPACITIES P R E L M INAR Y D E S I G N 3 00 -M A N -D A Y S
TRIM I m co
STATICS
AND IN T A C T
BON- STABILITY
C O N T R A C T DESIGN 5 ,000-m a n - d a y s
J EANS
j O E T A I L D E S IG N 5 0 ,0 0 0 - M A N - D A Y S
LIGHTSHIP
FLOOOABLE
LENGTH I * ESTIMATE
FREEBOARD
'O lER IN G
ARRANGEMENTS
( H U L L t MACHY)
S TR UC TUR E
F ig 2 . 1 Basic design spiral
Source: SDC....p. 2
used t<i illustrate the sequence of calculation done and re-done when starting with a mi
of user requirements. One determines the main dimensions, weight, space requirement v.
resistance and stability, powering, cost estimates etc. of a ship. The determination <>l
main dimensions of a floating object is an interactive process that results in a balanced
solution. As an integral feature of the basic ship design process, the design spiral a ssn rc v
the design and production of an integrated system, where the components of the ship
designed to tit together. Subsequently the demands for |Mrformance and economy ut (in
shipboard system as a whole will have preference over the performance and econom*
of the individual components.
2 .3 . 1 I Manning and Scheduling Bask Ship Design
.lust as planning and scheduling efforts are pre-requisites for the construction (
a ship, planning and scheduling are also required for the basic ship design. I.and'
(1994) shows the linkage of basic ship design with the construction process in l-'igun 2.-Z
- Build Strategy Route Vlap. Typical design and building schedules are s h o w n n.
'{/S P C M > I X I X ] ;
Kssenfially, the basic design is that portion of the overall ship-design prove"
which begins with concept design and carries preliminary design to the point when
there is a reasonable assurance that the imqor features of the ship have ben determined
with sufficient dependability to allow the orderly development of contract plan ami
specification. Kiss (1980) emphasized that this development will form the basis to obtain
shipyard prices within a predetermined price range that will result in an efficient dm
with the requisite performance characteristics. This is the path which has been taU.
in this research work.
33
ckSGWPffflttAL MISSION PRODUCTION
-OriBBggN .. REQUIREMENTS
OUTLINE SPECIFICATION
AND ARRANGEMENT
DETAIL PRODUCTION ENGINEERING

DETAIL PLANNING
WORKSTATION
PRELIMINARY
DESIGN
DETAILED DESIGN
DETAILED
SPECIFICATION
AND INTERFERENCE
ARRANGEMENT FREE ARRANGE
MENT
CONTACT TRANSITION
DESIGN DESIGN
APPROVAL INFORMATION
FIGURE 2-5 - BUILDING STRATEGY ROUTE MAP

Source: Report on Building Strategy Development, p.5
34
2 -4 ESTIMATING w e ig h t s , c o s t s , v o l u m e s , ANI> HYDRODYNAMICS
\ Hood i)umber of published works (Breda, 19X1: llarvald. 19X3; Keil. 19X2) <<u
estimating weights, volumes and costs of ships abound in the literature and need to lu
cited. Breda (19X1) presents a number of diagrams which show the relation k tw n n
deadweight and displacement, main dimensions and deadweight, system weights ami
deadweight for tankers, bulk ships and "paragraph ships. He also discusses the desim
of ships, main dimensions, fullness and lines, freelmurd draught relations, stahilii
weights, longitudinal distribution of displacement trim , cubic capacity and
coinpartiiieiitatiou. Harvald (19X3) reviews mathematical and physical models, ship
resistance and propulsion, machinery - propeller interaction, model ship correlation an i
prediction of power.
Keil (19X2) discusses weight and cost estimation on the basis of weight and
production costs of characteristics section of a ship. Ilis method is hast'd on the lm
that all structures have a large degree of continuity. According to him there are a fe
abrupt changes in the volume of material and tliechauges that exist are easily ideutil u '
Weight is estimated by calculating the weight per unit of length or height for typu.ii
sections. The complete weight is found by integrating over the length or height. A slip,
shaped vessel will, however, have a steeper decrease at the ends. Usually it is ass ii i iu i
that the reduction may lie expressed by the formula:
V\\ = W V ax+Il where
Wx = Weight per unit length between the |ierpendiculars ami
0 . 2 L at amidships.
W|. = Weight per unit length within (1.2 amidships.
This method can lie used for calculating man hours, centre of gravity and m a
35T
with permission of the copyright owner. Further reproduction prohibited without permission.
Watson and Gilfillan (1977) concentrate on cargo ships. They discuss the structure ami
development of design formulas and present actual formulas for deadweight carru i -
volume carriers and linear dimension ships. The tonnage ship such as tuglio.ii
ferryboat, etc.. depending on the basic owners requirements later was added to ilm
classification by size determ inant. Since the primary objective of this research is m
estimate construction costs of comparable vessel (i.e Handy size/Haudyiiin\ of op
20,0000 dwt to 45000 DWT) the review would lie limited to the Deadweight ship.
The design of m arine structures is dependent on correct estimates of uei^ln
volumes, centres of gravity, costs and capacity. The cost calculation for the luill
including superstructure and deckhouses is based on a m an-hour and weight calculation
and on the price per m an-hour and per tonne of material. The price per man-hour m.i>
vary greatly between countries (Mack-Forlist, 1976: Careyette, 19781. Howr\ei
preliminary cost calculations are based on an estimated m anlier of man-hours and tin
weight of the m aterial.
In principle weight, volumes and centres of gravity m ay Ik* calculated In l<m>
different methods:
1. General formulas, diagrams or charts
2. Extrapolation from known and similar object
3. Simplified direct calculation methods based on approxim ate hull Ibrm an -1
structural configuration.
4. Item by item direct calculation of the actual vessel.
The first two methods are generally used in the preliminary design. The thn <
and fourth methods are used for the final calculations. This research work is limiti d
to preliminary design methods.
36
Diagrams and charts are hased on. or may lie approximated In fonnni.i-
Formulas deal with different aspects of design ranging from the estimation of the nvcr;ill
weight of a complete semi-submersihle to the derivation of the propulsive capacity nt ;m
azimuth thruster. A formula may he specific to only one type of vessel or in .1
particular set of conditions. Good sources of weight formulas include Schiieeklutli
(I9K0) and Watson (1977). For the deadweight carrier, its dimensions are determined
by the equation (Watson, 1977).
A = C,. L B T x 1.025 (1 + S) = W + W,
L = Length Bp in meters
B = Breadth molded in meters
T Load draught in meters
C,, = Molded block coefficient at draught
T on length BP
A = Full displacement in tonnes
S = Shell, stern and appendages displacement expressed as a fraction of tin
molded displacement.
W,, = Full deadweight in tonnes
W, = Lightship weight in tonnes
It is noteworthy that T is the maximum draught permitted hy the gcoim-nu

freeboard for the ships dimensions and construction.
a * 4 i SHII> FORM d e f in it io n , r e s is t a n c e a n d p o w e r in g r e l a t io n s h ip s
This section is devoted to ship dimensions optimization, displacement. pow. 1
estimates and some elementary relationships used in naval architecture.
The dimensions of a ship are defined early in the conceptual design stage. Tne.se.
37
are modified slightly as the design develops to meet sub-optimized criteria for speed,
stability, displacements, etc. Some coefficients used in naval architecture that are very
useful in power calculations in expressing the fullness of a ships overall form are
discussed here. Displacement A , the total weight of the ship is a force defined as:
F = ma
=pv [ Hamlin, 1988 ]
Where p = density of water,tonne/m3
v = volume of displaced water, nr*
F = force due to displaced water, tonne
Displacement includes weight of hull steel, machinery, fuel, water, ballast, cargo, spare
parts, crew, etc. Several form coefficients (Hamlin, 1988) are useful in representing the
shape of the underwater hull. These include:
Block coefficient is:
CB = V
L. B. T.
Where L Length perpendiculars, m

B beam, molded, m
T depth equal to draught (draft), m
Prismatic coefficient is:
Cp -
midship area.L
Midship area coefficient is:
Cm = midship area
B. T
Note that:
Cb - Cp . C
38
C,M, waterplaiie area
L. B.
Vertical piinistic coefficient is:
= _________ v______ = Cfr_

waterplaiie area. T Cgp
The development of the basic design follows the entire design sequence suggesii-.i
by Evans (1959) in the design spiral as an iterative process from the mission
requirements to a detail design. The process involves four steps namely Concept Design.
Preliminary Design, Contract Design and Detail Design.
Resisitance Estimation and Propulsion
Residuary resistance coefficents, Cl* were based on Taylor Standard Series is .m
Yfanen.et al,l988), for prismatic coefficients up to 0.K6. An estimated correction fa.i<n
for the effect of bulbous how was applied to the Taylor residuary coefficient. as:
C r = C r (Taylor) ( 1 - 0.12 Vkf y f l . )
where E is the Length on the design waterline.
Friction formulation was based on the Schoenherr line ( van Mauen. I9XH |. .iv
approximated by the substitute relationship.
C. = 0.4651 ( log,,, Rn) - 2.6
Correlation allowance was adopted from [ vail Maneii. 19X8 ]
as C = ( 0.523 - 0. 000566L) x 10'
Wetted surface was estimated from Taylor Standard coefficients.
Total resistance coefficients were increased 2%. for appendages, to estimate in.,,
condition resistance R, and effective horsepower Pe.
Propulsive Coefficients (single Screw)
Hull efficiency w'as estimated as following:
39
TJh = ( 1 - t ) / ( 1-W),
w = 0.727-1.86 CB+ 1.74 C2,
t = 0.60w.
Open-water efficiency, no with the propeller in open water with a uniform
inflow velocity, at a speed of advance VA has an open efficiency given by
tjo = _T V a_ where Qo is the torque measured in

2 7TnQo
open water when the propeller delivered thrust T at n revolutions.
Efficiency behind the hull. r|B with the propeller at same effective speed o f
advanced VA, the thrust T and revolution n will be associated with same
torque Q and the efficiency behind the hull at
t]B = _TVA
27tn Q
Relative rotative efficiency. r\R is the ratio of behind to open efficiencies

given by
riR = _nB_ = _>o

t|o Q
1.0 < ti R < 1.1
propulsive efficiency. nD is defined as
r|D = effective power = _Pg

delivered power Pq
With R j and T in KN and speed in m per sec
Pe = RjV
40
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission
PD = TVa
tIb
Therefore t| d _EtY x t| b , and expanded into the form:

TVa
tId = (1 - t)nR
(1 - w )
= (l-t)T lB n o = ( I - t ) T |R r | 0 = T |H . r | R . T i R
(1-w) ri0 (l-w )
2 ^ -2 . Lightship Weights
The lightship weight, WL is composed o f steel weight + outfit weight + machinery
weight + margin.
Hull steel weight. W, was based on the modified Lloyd's Equipment numeral of 1965.
W .= 1.185 x 10'3 E ,J6 [0.65 + 0.5 C + (1 - Cb) ( 8 D - T ) / 6 T]
Where E = L(B + T) + 0.85L (D-T) + 0.75 Z L , H.
Cb = Block coefficient
D = Depth
T = Draught
L = Length between perpendiculars
B * beam
Lc = length of houses
He = height of houses.
Outfit Weight. Wo Again adopted from Watson (1977):
W0 = 0.0290 x LB - 1.59 x 10'5 K L2B.
Machinery Weight, Wm, was based on low speed and medium speed diesel
propulsion machines weight as cited in Watson (1977).
Wm= 0.124 (MCR)f (RPM) <y67 + 0.555 (MCR)07
Where MCR = Maximum continuous rating HP
f = 1.299 (L O g .o RPM) '0 44 F <_ 1
RPM = engine speed, rpm
Crew and Effects were estimated at 0.35 tonnes per crew member.
Lightship margin of 3% was applied to total o f lightship weight items listed
above.
2f4& Shipbuilding Costs
Various researchers, including Benford (1980), Buxton (1972), Carreyette (1978),
and others, have applied with considerable success, regression analysis to the problem of
estimating shipbuilding labour and material costs given the preliminary parameters of a ship,
including length, breadth, depth, draught, block coefficients, speed and power. The general
relationship;
C = ax", is very useful when fitted to actual shipbuilding cost data. The following
is a summary of the relationships derived for preliminary cost estimating.
Steel work direct labour cost:
C sl K, W ,273 L 1/3
Cb
Outfit direct labour cost:
Col = K2 W0m
Machinery installation direct labour cost:
Cmi = K3 Pok
Steel materials cost:
CSM =K4 W .'
Outfit material cost:
Com = K , W095
43
for diesel propulsion, Cmm = IQ P *2
for steam propulsion ,Cmm = K7 P 6
where Kj = Constant which depends on shipbuilder, system of units
and cost per unit.
W, = Steel weight
Cb = block coefficient
W0 = Outfit weight
P = Service propulsion power
Shipbuilding and ship repair costs are divided into categories for accumulation
purposes and for use in estimating or predicting the costs of a future project or contract.
These categories include:
1. Direct labour includes the cost of all labour expended directly and wholly
on the ship or project.
2. Indirect labour includes labour expended in support of all or some o f the
ships or projects underway during a given year. Such labour may include
safety workers, production planners, security workers, facility repair
workers, and many other categories.
3. Direct material includes all materials which can be assigned directly to a
ship or project. Machinery, steel plate, pipe fittings, furniture etc., are in
this category.
4. Indirect material includes materials, services, and supplies which are
difficult to account for on a ship or project basis. Such items included
compressed air, welding rod, electric power, clearing materials, sand
blasting material, etc.
44
S. Overhead costs include the indirect labour and materials depreciation
expenses, interest cost, and all other costs o f the business which cannot be
allocated directly to a ship or project. In shipbuilding and ship repair,
engineering expenses are usually charged directly to the ship or project for
which the work is undertaken. Marketing and general management costs
are broken down in a special overhead or burden category called General
and Administration Expenses.
For cost estimates for preliminary design study, Scher and Benford (1980) have
developed typical functional relations between design and weight parameters and ship costs for
bulk carriers. Such a relationship requires knowledge of building, operating, and financing
costs. To obtain the shipbuilding labour and material costs, Scher-Benford study used the
following relationship with the relevant costs applicable to the period being considered.
Ship steel material cost (SI Cm were estimated based on the ship steel weight, W,
plus a scrap allowance adapted from Watson (1977). The total steel weight used for material
and labour cost estimates was
C m = W, ( 1. 167 - 0.117 CB) x (Steel cost per tonne)
Ship steel labour cost (labour - hours):
MH. = 157 W *09, where
W .i = W . (1.167-0.117 CB)
At $16.00 per labour-hour, the steel labour is:
Labour cost ($) = 16.0 x MHs
Outfit weight, W = 0.0290 x LB -1.59 x 10 s L2B
and outfit labour and material costs ($):
At 270 labour-hour/tonne outfit, the outfit labour cost is:
45
Labour cost = (270 mh/tonne) (16.0 $/mh)W
At $7,200/tonne of outfit, the outfit material cost is .
Material cost = $7200 WD
Diesel propulsion costs ($)
Machinery cost = 13,672 (MCR) 0 7 + 800,000
Shipboard electronics are $600,000 installed. .
Total ship estimated costs:
Ship cost = material + labour + overhead,
where overhead may be up to 100% of the direct labour cost.
2 j |< 4 Volume Estimation
In general, costs are calculated as a function of weight.
In a few cases costs are also calculated as a function of volume or area. Weight is usually
calculated as s function of capacity, that is, dead-weight, volume, area and power. Therefore,
it is necessary to determine the capacity in some form before estimating the weight or the cost.
The most generalized formulas take the vessel as a whole and use total weight and total
volume. In a more detailed design, formulas for different parts or systems of the ship are used
to derive figures for weights and costs. The figures for volume and areas are split up in types
of departments, for example for cargo, passengers or ballast, or machinery bunkers, there are a
variety of formulas, generally of this mathematical structure:
J = a + a, x, bl + a2 x2b* + a3 x^ b* ...(Taylor, 1915)
The basic philosophy behind the mathematics is that some
items vary with mass or volume, for example, the displacement or total cubic capacity. Other
items vary in relation to the 'Surface' of the vessel (Telfer, 1955). The cubic capacity is often
expressed as the product of the three main dimensions, length L, beam B, and depth D. The
46
product is called the cubic number(CN). The expression for surface' is derived by reducing
the cubic number or the displacement by a power of 2/3.
The following taken from (Erichsen, 1989) summarizes the
formulas used to derive the set o f main dimensions since the required capacity (20,000 DWT
up and to 45000 DWT) is known:
The cargo hold volume, C, may be estimated:
Tankers: C = 210 x 106(L B D) 09 (m3)
Dry bulk single decker C = 370 x 106 (LBD) 104 (m3)
Shelter decker C = 350 x 10 6 (LBD)104 (m3)
Formulas for geometry are based on Breda (1981)
For single deck ships, regression analysis gives:
LBD = 1994 XC 962
The length/depth (L/D), length/beam (L/B) and beam/depth (B/D) ratios vary
within a quite narrow range. Some typical values are:
L/D = 12
L/B =6.7
B/D = 1.8
The L/B ratio is a basis of the requirements for the
ship's longitudinal strength, and is often limited by the plate thickness in the deck. The B/D
ratio is dependent on the stability requirements.
When these ratios have been determined the length may be expressed as follows:
LBD = L x (L x B/L x (L x D/L) = L3/(L/B x L/D)
L = LBD x L/B x L/D) 1/3
Combining this with the regression formula we get:
L = 12.58 (L/B x L/D )l/3 x C0J21
47
Typical L/B and L/D ratios, for this type of ships are 6.7 and 12 giving L = 54.3
C 321 (dry bulk, single deck) Correspondingly,
L = 56.9 C0'306 (Tankers, L/D = 12,L/B = 6.5)
L = 56.9 C0J2 (Shelterdeckers, L/D = 12.5,L/B = 7)
The draught is determined by the freeboard regulations.
A typical ratio is,
T/D =0.75.
2 .^ .5 Transport Capacity: Formulas for Transport Systems
Q = N x P in tonnes, m3, number of units, per year where:
N = Number of ships
P = annual ship capacity (tonnes, m3, number of units etc), Ship
transport capacity:
P = CGA, where
C = Capacity per ship (a quantitative measure)
G = Loading factor, degree of utilization of ships capacity.
A = Round trips per ship per year (l/(ship x year))
A = 365 -Z (1/year)
T
Z = time out of service (off hire) (days/year)
T = Round trip time (days)
T = T, + Th (days)
TH = time in port per roundtrip (days)
T, = time at sea per round trip (days)
T. = D (davs)
24V
TH = 2 CG/U + Td (days)
48
D = transport distance (nautical miles)
T d = Delays in port per round trip (days)

V = Ship speed (knots)
2 = Num ber o f loading and unloading operations for one load o f cargo
U = Loading/unloading capacity (tonnes/day)
P = CO (365 - Z ) _ '
2CG + T D + _D
U 24V
When required annual capacity per ship, P, is given:

C = rPD + PTd)/G ((365 - Z) -2P)
24V U
V= ED__________
24CG( (365 - Z) - 2P) - PTn
U
When number of days between calls, F, at the posts is also given:
F = 365
A nt
Capacity per ship, C = _ O = OF

ANG 365G
2.5 ECONOMIC CRITERIA

In course of this study certain economic considerations were used as an
approach to decision making. Several different economic criteria could be used to judge the
success of an vestment, such as a ship, or when deciding between alternatives. The
measures of merit selected for the analysis of the venture are dependent upon several
factors, e.g. are the revenues predictable, is the earning capacity the same for each
alternative, are the economic lives of each of the alternatives the same? All of the
sound criteria recognise the time-value of
49
money, the need to recover capital investment, the costs of operating and maintaining the
investment, and generally account for corporate income tax. The aspects of ship economics -
profitability and competitiveness will be discused in this section of the literature review. In
order to assess these two issues, comprehensive consideration is given to the composition and
scale of ship costs - capital, operating and vogage - revenue generation and the cost/revenue
relationship.
2 S 'l The Cost of Acquisition
When considering the economic profitability o f acquiring and operating a ship, the
prospective owner must consider two sets o f costs, one being generally fixed, the other
variable. According to the Drewry Seaborne Trade and Transport Studies o f 1991, the fixed
costs were determined, in the main, by the terms and conditions under which the ships were
purchased - specifically the price at which the vessel was purchased in the first place and how
the purchase was financed by the owner, particularly the debt/equity ratio, depreciation policy
and the discount rate.
Funds for ship investment have, historically, been provided by debt and, to a far
lesser extent lease financing, with the annual capital charges being serviced by funds from
trading operations. These are essentially three main areas for owners to generate profits in the
shipping market namely:
The generation o f trading profits by the succesful timing of charter contracts in
light of prevailing freight movements and trade patterns. This involves successful
anticipation of future market trends and the rise or fall o f freight revenues. 1990
saw rates and ship values slip after three years o f high rates and trading profits.
Through "asset play" and the buying and selling o f ships on the international S and
P market. Success in this activity obviously depends on the correct timing of sale
50
with permission o f the oopyright owner. Further reproduction prohibited without permission.
and purchase decisions, but in a rising market such as the 1987-89 period, the
acquisition and subsequent resale of a ship, whether second hand or newbuilding
resulted in substantial capital gain.
Through innovation, that is improving equipment and cargo handling efficiency on
the vessel, thereby enhancing its trading opportunities and/ or reduce costs.
The revenue flow needed to service the first cost of a ship would differ from ship
to ship as the fleet would comprise ship of varying ages - some new and some old - financed
under different terms. Given this, the debt service requirement would depend on when the
owner bought the ship and how the transaction was financed. But this study would consider
new shipbuilding.
2*5.-2 Ship Prices and Capital Costs
According to the Report by Drewry Shipping Consultants, in 1994 on Bulk
Carrier Market: Global Prospects For Recovery, 1993-2000," the development of capital costs
depends on future trends in new building prices and secondhand values. The secondhand
prices will continue to reflect market fluctuations, several factors would suggest a rising trend
in newbuilding prices during the remainder of 1990s for the following reasons.
Periods of high bulk carrier rates are generally characterised by heavy contracting
for new tonnage with the lengthening order books and "lead" times resulting orderbooks and
"lead1times resulting in a sharp rise in newbuilding prices.
A key assumption is that newbuilding demand for fleet renewal will increase
sharply from mid-1990s, with the pattern of ordering reflecting the advancing age profile of
the bulk carrier fleet.
A forecast increase in prices of newbuilt bulk carriers presented in Table 2.-i f
would, if it occured, push up owners' capital costs by as much as 45 percent by the year 2000.
51 <

TABLE 2.4. FO R ECA ST BULK C A R R IE R NEW BUILDING PRICES (US SM)
Year Handysize BC Panam ax BC Capesize BC
25,000 65,000 120.000
1983 18.0 31.5 51.3
1996 21.5 37.5 61.0
2000 26.5 46.5 75.5
S o u rc e : D rew ry S h ip p in g C o n su lta n ts
In a n o th e r rep o rt by F airp lay In tern atio n al W eekly o f 1996. new

o rd ers in S outh K o rean S h ip y a rd s for tw o 17,000 D W T B ulk w o o d c a rrie r
cost S26 m illio n each.
T h e prices quoted are o n ly in tended as a g en eral gu id e to tren d s in the

n ew b u ild in g m ark e t b e c au se o f th e v a ria tio n s in th e sp e cific a tio n of
in d iv id u al ships - m ost n o tab ly in th e c a p a c ity o f the sh ip b o ard carg o -
h a n d lin g eq u ip m en t - and th e fact that p ric e s u ltim a tely reflect a n u m b e r o f
d ifferen t factors, a m o n g th e m o st im p o rta n t o f w h ich are:
- L ocal d iffe re n c e s in th e co sts o f la b o u r and m aterials.
- D ifferences in p ro d u ctio n te c h n iq u e s an d sh ip y a rd p ro d u ctiv ity
- the a v a ilab ility o f sh ip y ard su b sid ie s and o th e r financial aids to
- sh ip y a rd s and o w n e rs
- the cu rre n c y (o r cu rre n c ie s) in w h ich the c o n tra ct p ric e is
- neg o tiated . C u rren c y c h a n g es, p a rtic u la rly c h a n g es in th e d o lla r v alu e
- o f the Jap an ese yen, h av e a c o n sid e ra b ly im p act on prices.
- w h e th e r th e o rd e r is fo r a sin g le sh ip , o r for a series o f b u lk c a rrie rs o f
52
identical size and configuration.
the availability of building berths at the time the ship is ordered,
the length of the "lead time" - that is, the period which will elapse between
the ordering o f the ship and its delivery to the owners,
the selection of a "standard" or "unique" vessel design.
On the other hand, capital cost (fixed capital plus working capital) are those costs
borne by owners that are associated with acquisition o f the ship, either as a newbuilding or
secondhand. The purchase of a ship will involve the outlay of money which the owner hopes
can be recovered from the flow of freight income generated by the vessel over its trading life
or by the sale o f the vessel at a future date. Ship owners seldom completely finance the
acquisition of a vessel from their own resources because of the scale of such an investment,
generally borrowing at least 50% of the purchase price.
Financial assistance is therefore obtained either from the open market or from government
sources; to cover the non self-financing proportion o f the initial acquisition cost. Thus the
capital costs will encompass periodic loan repayments, interest on the loan, together with any
cash down payments. Evaluation of the capital costs borne by owners is a difficult exercise
because there are no set criteria which have to be followed, much depending on allowances
made for:
Deposit/Cash flow
Loan repayment
Interest rates
Tax considerations
Vessel's anticipited working life
Depreciation policy
Opportunity cost
Residual value
The "time value" of money
Operating Costs and Components
Taking the breakdown of shipping costs shown' in Figure 2.3
BREAKDOWN OF BULK SHIPPING COST COMPONENTS
CAPITAL COST (fixed)
Cash price of vessel
Loan capital interest charges
OPERATING COSTS (quasi-variable)
M anning and vitualling
Vessel maintenance and repairs
Vessel insurance
Stores and supplies
Administration
VOYAGE COSTS (variable)
Bunker (marine fuel) prices
Port charges
Ancillary disbursements such as canal and seaway charges
Source: Drewry Shipping Consultants Ltd.
FIGURE 2.3 BREAKDOWN OF BULK SHIPPING COST COMPONENTS
54
the report of the Drewry Shipping consultants provided an appraisal of each component,
namely: Capital Costs (fixed) comprise cash price of vessel and Loan capital interest charges,
operating costs (quasi-variable) comprise manning and vitualling, vessel repairs and
maintenance, vessel insurance, stores and supplies, administration; and Voyage Costs (charges,
and ancillary disbursements such as canal and seaway charge^ Based upon an analysis of
contemporary trends in the costs of bulk shipping, taking into account current issues of
operational safety and environmental protection, a forecast on the development of these costs
to 2000 is set out in Table 2 .$
TABLE 2 j6 FORECAST BULK CARRIER OPERATING COSTS
(USS 000 per year)
Year Handysize BC Panamax BC Capesize BC
25,000 65,000 120,000
1993 1,539 1,950 2,408
1996 1,902 2,400 2,998
2000 2,303 3,044 3,758
Source: Drewry Shipping Consultants
These forecasts can be explained under the context of the following reasons:
Bulk carrier operating costs have risen significantly since the start of the 1990s, with the
largest increases in manning costs, insurance cover and expenditure on repair and maintenance
(R and M).
55
Further sharp increases in these components are forecast due to:
A worldwide shortage of experienced, qualified seamen which is pushing
up wages and social benefits
The ageing of the bulk carrier fleet, and the effect of this on R and M
costs.
Upward pressure on premium for hull insurance which stems from losses
and the growing regulatory enviroment.
<2>5^4 Voyage Costs and Bunker Prices
The key factor influencing future bunkering costs would be the price o f crude oil.
The Drewry Shipping Consultants report concluded that there would be a reasonable stable
bunker prices up to 2000.
Predicting future increase in canal transit costs would suggest that when setting its
tolls, the Suez Canal Authority (SCA) and other seaways have had to strike a balance between
the needs for short-haul operators who are effectively captive, and the long-haul shippers who
could choose to route cargoes via either the Cape of Good Hope or Panama Canal.
2>)5S Shipbuilding Financing and Investment
Debt, properly used, increases profits to the owners o f business (Shaner, 1979).
The reason lies in the profitability and risk relationships between debt and equity capital.
Investors who lend their money in the form of debt have greater security of both income and
assets, expected returns to debt in the form of interest are lower than those to equity in the
form of dividends and appreciation in the value of owners' shares of stock. Thus, a positive
relationship exists between risk and expected returns. Moreover, owners of business with
56
limited funds can expand the total size for their investments by acquiring additional funds
through debt. Consequently, for a given amount of equity funds, the more debt that can be
brought in, the higher the profits to owners provided the profitability o f investment exceeds
the cost of debt.
In most cases government aid forms only part of the total credit package
assembled to finance the construction of a new shipbuilding, although it is likely to be a
crucial part. One o f the most important facts in any credit arrangement is the interest rate
charged on the loan. An important advantage of government loans is that they are almost
always fixed interest rates for the whole term of the loan. According to the report o f Drewry
Shipping Consultants, 1995, commercial loans are occasionally granted at fixed interest but
are usually charged at floating rates, often the London Inter-Bank Offered Rate (LIBOR) plus
charges. Many maritime ratios maintain debt-to-equity ratio of 20 to 80. Table 2.6 indicates
the degree of differential between LIBOR and a fixed interest rate during the years 1980-1990.
TABLE 2 & OECD AND LIBOR INTEREST RATES, 1980-90
(Percentages per annum)
OECD1 LIBOR2
1980 8 14.03
1981 8 16.72
1982 8 13.60
1983 8 9.93
1984 8 11.29
1985 8 8.64
1986 8 6.85
1987 8 7.30
1988 8 8.13
1989 8 9.27
| 1990 8 8.35
57
(1) 80% of capital for eight-and-a-half years
(2) Six month rate on US dollar deposits
Source. IMF, International Financial Statistics
The 8% fixed interest rate shown was that of the 1980 OECD Resolution on
shipbuilding credit which has continued to be in force. Comparision with the variable LIBOR
rate shows the advantage to the owner of a government financed, fixed interest loan in terms
of both the total interest paid and the predictability of the installments. Although the high
commercial rates of the first half of the 1980s are past and some average annual LIBOR rates
since then have been lower than the OECD rate, government loans granted under OECD
terms still have overwhelming advantage of allowing eight-and-a-half years repayment whereas
a commercial loan is typically given for two-to-three years only with provision for fluctuations
in LIBOR.
The annual capital cost requirements envisaged during the economic life of the vessel are
based on the standard OECD financing terms applicable during the financing period. These
are:
Credit up to 80% of the vessel price
Repayment period of 8.5 years from date of delivery
Minimum interest rate of 8% per annum.
In most cases, a capital return of 15% on money invested is incorporated into the
calculations, an economic life of 20 years is assumed.
58
Ability to increase owners' profits through use o f debt is known as leverage. A
project that earns less than the MARR will cause return on equity to fall below their minimum
attractive level; and if profits are sufficiently low or should losses occur, interest payments,
which are a contractual obligation, may force the organisation to sell part of its assets. Should
profits remain low or losses become severe, the shipbuilding company could be forced out of
business and the owners lose their investment. Because of this possibility a cautious approach
to utilising deverage was suggested.
An appropriate balance between caution and desire to maximize profits was
obtained by having a sufficient spread between expected cash inflow and debt service
requirements, that is, through level of coverage. Target levels of coverage depend on many
factors, including the nature of the economy, type of industry, company characteristics.
Finanaical strength, and the venturesomeness of management (Shaner, 1979). In this study, a
debt coverage of four was utilized, that is the average cash inflows, net of operating costs, are
four times the anticipated requirments for debt servicing. The excess o f coverage over debt
servicing is intended to allow for periodically poor business conditions. Target levels of debt-
to-equity ratio are maintained by securing new debt as old debt is paid off and by adding
equity funds as shipbuilding grows.
Another approach to determining the economic test o f profitability of the venture
is through the concept o f measuring the private incentive, which is the profit on owners'
equity. This minimum rate for investment in projects is higher than the rate received from
money deposited in a savings account because o f the higher risk associated with projects.
Thus, the minimum rate on equity is a function of the degree of risk and each investor's
attitude toward risk. The return on equity is calaculted by using the same rate-of-retum
procedure, but applied to the owner's equity investment and their receipts. Their investment is
total project investment less the amount borrowed from others, and their receipts are the net
59
cash inflows less debt servicing and their receipts are net cash inflows. Researchers such as
Benford(1977) and Shaner (1979) agree that if the bank loan is fixed percentage o f the total
investment, then owner's yield (i0 or DCF0 ) will point to exactly the same design as that
indicated by yield on total investment (i or DCF). In other words, the rate of return calculation
on total investment is sufficient to test whether or not an adequate return on equity will be
attained. Once the required return on equity has been established (usually through an
evaluation of stock transaction) and the MARR calculated project profitability can be
compared with the MARR without bothering to check on return on equity. The validity of this
conclusion is as follows:
If a = percent o f debt,
b = percent o f equity
c = interest rate on debt
and d = required return on equity
then ac + bd = MARR.
With a,b and c fixed, and rate o f return on a project that exceeds the MARR will cause the
return on equity to be higher than d; and the opposite effect holds when the rate of return is
below the MARR.
2 .6 Economic Factors
This section will review the economic factors that affect ship construction costs
worldwide and it will also discuss the prevailing economic conditions that will positively affect
Nigeria as a potential shipbuilder. Ship construction costs constitute the major aspect of
international competitiveness in shipbuilding and this study will address the issue of
construction cost in the context of enhanced Nigerian competitiveness in the maritime
industries o f tomorrow.
60
with permission of the copyright owner. Further reproduction prohibited without permission
1 Ship Construction Cost Competitiveness
In the past sefveral years, numerous publications and books have been written
about ship construction costs. The literature is quite extensive and for-reaching in its thrust but
tends to deal more on merchant ship construction costs. The importance o f such costs
information is to emphasise its direct influence on the economic gains to investors - buyers and
builders of commercial vessels.
In ship design studies and shipbuilding studies, it is frequentloy desirable to make
cost comparisons among costs of major shipbuilding countries (Hunt and Butman, 1995).
Costs are usually quoted in the U.S. dollars, a convertible currency. The reasons for these
studies are several including;
Provides the basis for price offer.
Ship owners can purchase ships that meet their needs at a lower cost from
foreign shipbuilders except for ships built for protected domestic trade
(Carson and Lamb, 1990).
Provision of cost changes in the competitive position o f shipyards
worldwide including potential shipbuilders such as Nigeria.
Develop an approximate means o f gaging shipbuilding effort for different
types of ships in the desire to equitably measure the shipbuilding work of
various shipbuilding nations.
Anwers have been adduced as to the variations in construction costs.
Subsequently, researchers (Landsburg, et al, 1990; Scot, 1995) explained that increases in
foreign ship prices result from two causes: currency depreciation and increases in unit costs
for ship construction. Currency depreciation entails either the weakening of the U.S. dollar or
the devaluation of a national currency. On the other hand, changes in shipbuilding costs were
61
exam ined thro u g h th e an aly sis o f the c a te g o rie s o f sh ip y a rd costs: lab o u r, m aterial, and
o v erhead, lab o u r co sts a re d riv en b y a m u ltip le o f the a v e ra g e d ire c t w a g e rate and p roductivity.
M aterial co sts a re su b d iv id ed into b u ll steel, p ro p u lsio n m ac h in ery , and o u tfit. O v erh ead costs
can be d efin ed in term s o f fixed and v a riab le co m ponent.
S h ip b u ild in g c o st e stim a tes can b e d erived from th e p re lim in a ry e stim a te based on
functional relatio n sh ip s b etw een the co st and th e d esig n and w e ig h t p a ra m ete rs (E rich sen , 19S9;
K iss, 1980). Such relatio n sn ip s are d e v e lo p e d to facilitate d e sig n o p tim iz a tio n studies and
p relim in ary costs. T h e se estim ates a re in te rn ally co n sisten t w h en e v a lu a tin g sh ip b u ild in g
returned co sts to e stim a te the labour in m an -h o u rs, (and also th e d e liv e ry tim e) and m aterial costs
o f the p ro p o sed ships. T h e cost c a lc u la tio n for the m a te ria ls in clu d in g su p e rstru c tu re s and
d e ck h o u ses are b a sed on a m an -h o u rs and w e ig h t calcu latio n a n d on th e c o st p e r m an -h o u r and
p er to nne o f m aterial. T h e co st p e r m an -h o u r is the p re v a ilin g w ag e rate w h ich v aries g reatly
betw een co u n tries. F o r m an y p ieces o f m ac h in ery a n d e q u ip m e n t the req u ired c a p ac ity is
calculated first and th e u n it c ^ st is ap p lied to d eriv e to the co st e stim atio n .
T his section also deals w ith the factors used in th is research to d e riv e com p en sated
D W T (C D W T ) o r (C G T ) from D W T , w h ic h reflects th e c o n su m p tio n o f m an -h o u rs in the
sh ip b u ild in g industry, (o n e C G T equals o n e D W T tim es a c o m p e n sa tio n factor).
T he c o m p en satio n facto r for a p a rtic u la r ship type and siz e gro u p is co m p u te d as the
co n su m p tio n o f stan d ard m an -h o u rs, d iv id e d by the c o rre sp o n d in g figure. T h e am ount o f
m an p o w er used to p ro d u ce o n e D W T o f a p a rtic u la r ship type and size is o f co u rse , dep en d en t on
the p ro d u ctio n facilities an d k n o w n -h o w . T h e factor is h o w ev er, a rela tiv e figure, w h ich gives a
m ean req u irem en t for m a n p o w e r to p ro d u ce o n e D W T o f a c e rtain ty p e and size. W hen the
factors are applied on a h istorical data, sm all inaccu racies w ill occur, d u e to the fact that
production tec h n iq u e has d ev elo p ed m o re rap id ly in one ship ty p e s e c to r th an in an o th er. T hese
inaccuracies are reg ard ed as b e in g o f m in o r im portance. T h e facto r used in th is research are
based on figures for typical m an -h o u r c o n su m p tio n for a v a rie ty o f sh ip types and
62
sizes, co m p u ted as a w o rld a v e ra g e (B ru ce. 1992). F rom th ese figure the fo llo w in g
c o m p e n sa tio n factors h a v e been c o m p u te d and sh o w n in T a b le 2.7
T A B L E 2.7
C O M PEN SA TIO N FACTORS USED IN THIS RESEARCH SHIP
TY PE AND SIZE CO M PEN SATIO N FACTOR
Ship tvpe and size C om pensation factor
CGRT. C oefficient C G T. C oefficient
1977 1984
Crude Oil Tankers
U nder 50,000 dw t 0.50 0.60
5 0 -1 6 0 ,0 0 0 0 .4 0 0 .4 0
160-260.000 0 .3 5 0 .3 0
2 6 0 ,0 0 0 dw t and o v e r 0 .3 0 0.25
B u lk C a rrie rs - C o m b in e d C a rrie r
4 -1 0 ,0 0 0 d w t 1.80 1.10
10-30,000 d w t 0.6 0 0 .7 0
3 0 -5 0 ,0 0 0 0.25 0 .3 0
General Cargo
10-20,000 d w t 1.000 1.10
2 0 -5 0 ,0 0 0 d w t 1.000 0 .7 0
2 0 -8 0 ,0 0 0 d w t 1.000 0 .5 5
S ource: B ru ce (1992)
2.6.2 Exchange Rates
A s the d o lla r w eak en ed d u rin g th e 1980s as sh o w n in F ig u re 2.4 ships
p ric e d in the U .S . d o lla rs b e c a m e m o re ex p e n siv e . T ab le 2. 6 d o c u m e n ts the
m o v e m e n t o f m a jo r w o rld cu rre n c ie s re la tiv e to th e dollar.
B etw een 1982 and 1988, the d o lla rs ex c h an g e rate fo r th e Ja p a n e se y e n fell
from Y 251/S , th e o ritic a lly d o u b lin g th e p rice o f a Ja p an e se ship. S im ila r
ch a n g es in e x c h an g e rates for the G e rm a n m ark m u ltip lie d the price o f
G e rm a n -b u ilt ships b y a facto r o f o v e r 1.75. In th e sam e v ein , b etw een 1983
and 1996, the e x c h an g e rate for th e N ig erian n a ira d e p re c ia te d from N 0 .6 7 /S to
63
o F E i i m i L K E N E m i^ x c r n i
o
m
is.
o\
D2214
5
y ]
X
V
-o
c
tc<a . Q 221H 5k5G E

V
o>
c r s p tu ^ c ; .O 4 ,ig
(0
-C
uX I
L
1S 8 5 3 H r o 2 B & ^ : : ^
f iS S 2 S S 3 S S ^ y
1985 1990
Source: Economic Report o t the President, 1991.

The overall depreciation of the d ollar relative to the average of o th er m ajo r cu rencies during the 1970s reflected the m aturation
of other currencies, the d eclining prestige of the U nited States, p ro blem s w ith inflation, the deterioration of o u r term s of trade as
the prices of im ports grew faster than the prices of o ur exports (e.g., oil im ports versus m achinery exports), rising co ncerns about
the future of the d ollar an d of the A m erican econom y, and a host of o th er problem s. The dollar's strong recovery during the
early I90s signaled a reversal ot this dow nw ard spiral.
FIGURE 2. A". - The Dance o f th e U .S. D o lla r

t
'----- ' 5 t lM fc
Spain, peseta; Sweden, krona; Switzerland, franc; United Kingdom, pound.

Germany, mark; Greece, drachma; Ireland, pound; Italy, lira; Luxembourg, franc; Netherlands, guilder; Norway, krone; Portugal, escudo;
gapore, dollar; Sri Lanka, rupee; Taiwan, dollar; Austria, shilling; Belgium, franc; Denmark, krone; Finland, markka; France, franc;
Australia, dollar; Hong Kong, dollar; Israel, shekel (1975-84), new shekel (1985-88); Japan, yen; Korea, won; New Zealand, dollar; Sin
Note: National currency units are: United States, dollar; Canada, dollar; Brazil, cruzeiro (1975-85), cruzado (1986-88); Mexico, peso;
u
Movement of najor world

9k to
TABLE 2.6
Cn t o cocn CO COH CO QO
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to 00 CO
to . CO (D CO CO * CO t o to -4 CO
O -O IW M 0 5 (O -O 1 O 01 0 5 * 0 5 4 tO - ( 0 IO ( tO 2 M* 1 ao to > &D
0 ) * GO c n t o O O U 0 5 * 0 0 * g o Gtf 0 5 g o * .- 505 05 C1 * O
-4
0 (0 * * to c .j -4 ( 0 > O * 0 5 Cn * * o t o CO t o to
CO t o - 0 - 05 tO O D tO *0D s i 5 Cn QD 0 5 05
00
to
CO M- 4 to
A. c o o * CO t o CO CO to 4 tO
O 05 0 5 * 05 0 5 IO O H H U I * 05 05 t o 0 0 tO OO - 1 *- CO 0 5 n -
cn * >c n c o c n (O - o 05 i o i c o m 'o o c o n jb o cn cn to cn q p t o

CO to *0 -4 cn cn cn co * ao 05 * - - t o w o o CO s
2 2 -4 * QO Cn
CO
O W COM to c n (0 -1 c n
65
depreciation is that some foreign shipyards now quote prices in their national currency in order
to offset the risk o f exchange rate during the period of ship construction (Carson and Lamb,
1990).
The impact of the fluctuating value of the dollar is also felt by the shipping
enterprises worldwide because most freight rates are quoted in dollars. Any drop in the value
of the dollar would adversely affect the profitability of those foreign-flag shipping operations
which receive freight in dollars but pay crew and other cost in hard national currencies that
have appreciated relative to the dollar. This development has been an important contributing
factor to the rapid growth in flag-of-convenience, (FOC) registries at the expense of
traditional maritime registeries, especially the U.S. and European registeries, during the past
ten years. FOC crews are generally paid in dollars and not other national currencies. It is
obvious that exchange rate fluctuations encourage the movement to cheaper FOC or
international registries, this worsens the competitive pressure facing the traditional maritime
operators who employ more expensive native crews. The lesson learnt from this review is
Nigeria has continued to lose billions of dollars in freight revenue and to incur high balances of
payments deficits for lack o f adequate ships in its national fleet.
Zv 0 . 3 Shipbuilding Labour Costs
Shipbuilding is a labour-intensive industry. Therefore, if governments do not
interfere, it should not be surprising to find that successful shipbuilding nations are those with
the lowest-paid workers, assuming the needed technology is available to these countries (Hunt
and Butman, 199S). The decades of 1960 to 1990 saw Japan and then South Korea become
major world shipbuilders due to favourable labour rates. High wage rates impacted the
competitiveness of the U.S. and European shipyards. But according to the U.S. Bureau of
Labor Statistics in 1995, foreign wage rates rose dramatically during the 1980s. As shown in
66
Table 2.^, labour rales almost doubled in all major shipbuilding regions except for the U.S.
that instituted wage restraint through labour-management co-operation (Washington, D.C.
1987). This policy has resulted in a drop in the U.S. average direct labour rate and it could
favour the re-entry of the U.S. as a commercial shipbuilding nation.
Table 2.^: Hourly compensation costs for production workers in U.S. dollars, shipbuilding
and boat building and repairing.
COMPENSATION (U.S. DOLLARS)
Country 1975 1980 1985 1990 1994
US 6.84 11.22 14.57 15.50 15.96
Canada 6.35 9.24 11.95 14.50 15.80
Germany 7.22 14.02 11.00 26.90 27.80
Norway 7.46 12.40 11.25 24.36 26.0
Denmark 7.04 12.03 8.59 21.86 22.67
Netherlands 7.07 12.50 8.87 21.70 22.52
France 5.13 10.23 8.93 18.60 19.54
Italy 5.82 9.17 8.35 19.22 19.58
UK 3.75 7.52 6.37 12.55 18.50
Japan 3.92 6.75 8.19 15.80 21.20
S.Korea 0.56 1.73 2.35 10.00 13.50
Taiwan 0.57 1.54 2.47 3.75 6.25
Nigeria * - - - 0.50 0.60
* This indicates the hourly compensation costs for ship repairing work.
Source: US D e p t o f L abour: Bureau o f L abou r S ta tistics. M a y 1995 a n d O E C D M anual.
67
The average direct wage rate in Northern Europe shipyards is now considerably
higher than in U.S. shipyards. Wage rates in Japan now exceed the U.S. rate by almost $6 per
hour. South Korean average direct wage rates have risen ever 500 percent. Nigerian's
shipbuilding and shiprepair wage rate of $0.75 per hour remains far below that of South
Korea, U.S. and Japan, a low wage level the traditional shipbuilders cannot match. The labour
cost included in the shipbuilding cost is derived by multiplying total man-hours by unit hourly
wage.
During the period in review, the 1980s, new construction prices have almost
doubled. > .. . A very large crude carrier (VLCC) that was priced at $42
million in 1984 has a price of approximately $98 million today from Far East builders. The
price trends would continue to rise to exceed $100 million by early 21 st century.
2.&<4 Labour Productivity
Relative changes in hourly compensation costs in conjunction with relative changes
in labour productivity can be used to assess trends in competitiveness: The Japanese,
shipbuilders continue to lead the industry in research into productivity improvements Several
studies in the early 1980s showed that Japanese shipbuilders expended only one quarter to one
half of the direct labour man-hours required in the U.S. for construction of a tanker or bulker
(Weiers, B, 1984; MARAD, 1980; Jenks, A. and Lamer, J, 1983)
Today, virtually every shipyard has to implement labour-saving innovations and
technologies to improve productivity. These include implementation of Group Technology
(interim product technologies and Zone outfitting methods), widespread application of
68
computers to ships and ship design and productivity improvement through learning experience.
Nigeria's labour productivity factor of 2.2, as shown in Table 2.f0ranks high among those of
developed and emerging nations (Humphreys, 1993);
TABLE 2.10
SAMPLE LOCATION FACTORS
Location Massa's labour Bridgewater's

productive factors factors for chemical plants
U.S. = 1.0 U.K.= 1.0 U.S.=1.0
Algeria 1.82
Argentina 2.00(1.30-2.60) - -
Australia 1.20(0.96-1.45) 1.4 1.3
Austria 1.60(1.57-2.10) l.l 1.0
Belgium 1.14(1.14-1.50) 1.1 1.0
Canada, eastern 1.14(1.08-1.17) - -
Canada, western 1.07(1.02-1.11) - -
Canada - 1.25 1.15

Central Africa - 2.0 2.0
Central America - 1.1 1.0
Ceylon 3.50 - -
Chile 2.70 (2.00-2.90) - -
China, imported element - 1.2 1.2
indgenous element - 0.6 0.55
Colombia 3.05 - .
Denmark 1.28(1.25-1.30) 1.1 1.0
Egypt 2.05 - -
Finland 1.28(1.24-1-28) 1.3 1.2
France 1.52(0.80-1.54) 1.05 0.95
Permany, West 1.20(1.00-1.33) 1.1 1.0
Ghana 3.50 - -
Greece 1.49 1.0 0.9
India imported element 4.00(2.50-10.0) 2.0 1.8
indigenous element - 0.7 0.65
Iran 4.00 - -
Iraq 3.50 - -
Ireland - 0.9 0.8
Italy 1.48 (1.10-1-4) 1.0 0.9
Japan 1.54(1.00-2.00) 1.0 0.9
Malaysia - 0.9 0.8
Mexico 1.56 (1.54-3.15) - -
Middle East - 1.2 1.1
Netherlands 1.25 (1.25-1.60) 1.1 1.0
Newfoundland - 1.3 1.2
Newzealand - 1.4 1.3
Nicaragua 2.67 - -
Nigeria 2.22 - -
North Africa, - 1.2 1.1

imported element
indigenous element 0.8 0.75
Norway 1.23 1.2 1.1
I Location Massa's labour Bridgewater's
productive factors factors for chemical plants
U.S. = 1.0 U.K.= 1.0 U.S.=1.0
i Philippines 2.86
I Portugal 1.66 0.8 0.75
I Puerto Rico 1.54 - -
9 Spain, imported element 1.74 1.3 1.2

| indigenous element
Sweden - 0.8 0.75
Switzerland 1.18 ( 1 .10- 1.20 ) 1.2 1.1
Taiwan - - -
Thailand 2.82 - -
Turkey 2.32 1.1 1.0

United Kingdom 1.53(0.70-2.46) 1.0 0.9
United States 1.00 1.1 1.0
Venezuela 2.00 - -
Yugoslavia 1.40(1.25-2.03) 1.0 0.9
Source: B. G. McmiUan and K.K. Humphreys, Sources of International Cost Data, AACE
Transactions, American Association of Cost Engineers, Morgantown, WV, 1990, Paper K.6 .
With abundant human resources, low wage rate, cheap energy, budding iron and
steel complex, petrochemical industries among other factors, Nigeria's prospect of building
ships for its domestic market seems bright. According to the 1984 research findings of the
U.S. Maritime Administration it is true that in the Third World, cheap-labour shipbuilding
industries are becoming more effective in high-volume standardized production.
Comparision of productivity among the notable shipyards is diffcult and the
current performance is heavily influenced by the wage gap between nations. The conclusion of
the report by the Organisation for Economic Co-operation and Development (OECD) states
that while the OECD man-hour adjustments for complexity of ships are based on averages
from many shipyards, the individual yard productivity for a ship type does not very
significantly.
Hence, since 1980s the Dutch shipbuilder, Damen shipyards of Netherlands had to
71
look abroad for low cost sites in Central, Latin America and Africa in such countries of
Nicaragua, Malaysia, Indonesia, and India (Third World countries). In Marine Engineers
Review (MER) of August, 1995, it was reported that the German leading shipbuilder, Bremer
Vulkan was moving production activities to China because of high exchange rates and labour
costs in Germany. A joint British and Ukrainian shipbuilding agreement was also signed in
1995, according to the MER of October, 1995. The scheme envisaged a 50-50 split between
the two nations, with Ukrainian yards using local labour and steel to construct the hulls while
British firms would supply marine equipment and services. The main objective of the joint
venture would be to utilise the different skills and resources of Ukraine and the UK to build
high quality vessesl at prices which would comp-ete with major shipbuilding nations. A very
recent report o f MER, October, 1996 showed an increasing wage rate gap o f $7 between US
and Japanese shipyard workers has prompted the Shipbuilders Council o f America (SCA) to
urge the Congress to implement the OECD Shipbuilding Agreement so that US shipyards can
gain from the difference. According to the SCA's newsletter quoting a report by the US
Bureau of Labor Statistics showed that during 1994 the average hourly rate for US shipyard
workers was $18.08, while in contrast, the average Japanese wage rate for the same time
period was $26.15. Germany paid the highest hourly wage rate o f $29.74
2 6 ' 6 Material Costs
Steel, the critical material cost item in ship construction, remains, more costly in
the traditional maritime nations, especially in the U.S. at $493.7 per ton in 1994 (Hunt, 1995).
But according to Fairplay International Shipping Weekly of January 1996, steel prices reached
all time high o f $470-530 a tonne in India. Other components o f the materials assigned directly
to the ship or project include machinery, steel plate, pipe, fittings, furniture, etc. Material costs
72
are obtainable from the manufacturers and vendors.
In the absence of more specific and accurate information on costs, a useful index
of the direct labour and material costs trends published by the (JS Maritime
Administration can be used to update old cost estimates or returned costs. Avaiblable
literature on cost data indicates that steel plates and machinery are readily available in
Japan, South Korea, although Korean prices remain considerably lower. Other cheap
sources of steel include satellite states of the former Soviet Union, though Poland has
been selling cheap steel to Nigeria. US shipbuilders could theoritically use the same
approach, quotas on steel imports to the United States have limited the availability of
foreign steel to US shipbuilders. This import quota restriction was instituted to make US
domestic steel producers more efficient and cost effective. However, shipyards that are
part of a vertically integrated corporation, such as Hyundai or Mitsubishi continue to
enjoy a competitive advantage due to lower material transfer prices available within
their corporations. It is therefore likely that Japanese and South Korean yards would
retain some material cost advantage due to their industrial structure.
2 . 6 .6 O v e r h e a d C o a ts
Overhead costs include the indirect labour and materials, depreciation expenses,
interest costs, and all other costs o f business which cannot be allocated directly to a ship
or project. Marketing and general management costs are sometimes broken out in a
special overhead or burden category called General and Administrative Expenses.
Overhead costs can be divided into two types fixed and variable costs.
Fixed costs represent costs of continuing as a going concern, regardless of
annual production. These include debt service, facilities costs and
amortization, and salaries for essential indirect personnel. Fixed overhead
73
Some shipyards reduce fixed costs through staff reductions, facility
consolidations, and tighter control of other overhead expenses. Lower
overhead rates are most likely through an increase in the business base as
shipyard becomes very busy thereby attracting more business. Presently,
Japanese and Chinese shipyards have a significant advantage in reducing
fixed costs due to their projected high capacity utilization through the
1990s.
Variable Overhead Costs represent the benefits paid to direct workers plus
salaries and indirect resource costs that change with variation in business
base. These costs would include insurance, medicare tax and worker's
compensation tax and only a proportion o f the wage rate, variations
among the various countries do exist.
Some researchers (Benford, et al, 1982) could allocate 90% of the direct labour cost as the
overhead cost.
2 .^ ,1 Effect of Subsidies
The relationship between cost and price is frequently distorted by subsidies
available to shipyards. International ship prices remain strongly influenced by direct and
indirect subsidy programmes (Carson, and Lamb, 1990). Having eliminated subsidies to its
shipyards, the U.S.-built ships construction costs have remained very high comparable to its
foreign competitors. Without U.S. Government assistance to eliminate foreign subsidies, a
substantial price differential between the U.S. and its nearest competitors would remain. The
European Economic Community (EEC) guidelines in 1980s allowed up to 26 percent direct
subsidy, which brought European prices within competitive range of Japanese builders.
For export orders, favourable financing terms were allowed by the Organisation
74
for Economic Co-operation and Development (OECD), thereby reducing the true prices fo ships to
owners. Subsidy practices and their effects are well documented in the report of the U.S. Shipbuilder's
Council of October, 1988 and (Byrns and Stone, 1995). For example, during 1990, West Germany
raised its subsidy budgets from DM 700 million to DM 900 million, that is about 30 percent increase,,
or over $466 million in return for over $3.2 billion in new contracts.
Specifically, government regulations and taxes or subsidies influence demands from the
perspective of the buyer and seller in relationship to demand and price. Without these subsidies, most
major shipyards would remain priced out of the market, despite improvements in their cost positions.
According to recent reports on construction differential subsidy (Stabler, 1993; Zeien and Hillman,
1995) there is an agreement among the major industrialised shipbuilding nations within the
Organisation for Economic Cooperation and Development (OECD) to terminate their shipbuilding
subsidy practices. When finally ratified and implemented by the participating nations, this OECD
shipbuilding subsidy agreement will have the effect of reining in some of the more agressive subsidy
practices that contributed to the market distortions. But one thing is certain, that is, the construction
costs of new ships would certainly increase and this condition would invariably support the entry of
Nigerian shipbuilding industry, a potential low-cost builder.
There is also the need to understand why the OECD and the EEC are actively phasing out
government assistance to the shipbuilding industry among their member states. Th^consider more
likely to be achieved if approached in stages through collective agreement than by the imposition of
punitive measures such as those favoured by the US shipbuilding industry and a substantial body of
opinion in the Senate and Congress according to the report of Drewry Shipping Consultants Ltd,
1992.
However, the OECD is a group of twenty-four countries, including all the mature
75
! industrialised economies of the world, which coordinate their economic policies and activities
with the aim of achieving the highest sustainable economic growth and promoting the development of
world economy. Those members of OECD which are signatories to the Understanding on Export
Credits for Ships in 1969 are listed in Table 2 .lf In addition to those listed, Turkey and Iceland are
full members of OECD and Yugoslavia takes part in some of the organisation's work.
TABLE 2.11
OECD MEMBER COUNTRIES
EEC Countries Other Countries

Belgium Australia
Denmark Austria
France Canada
Germany Finland
Greece Japan
Iceland New Zealand
Italy Norway
Luxembourg Sweden
Netherlands Switzerland
Portugal United States
Spain
United Kingdom
Source: OECD
2. 7 . Measures of Merit
There are three more commonly used, valid measures of merit in ship design (Benford, 1983;
Buxton, 1978). These valid measures for a proposed investment are namely, the Net Present Value
(NPV), Internal Rate of Return or Yield (i*> and the Average Annual Cost (AAC) whose surrogate is
the Required Freight Rate (RFR).
76
2-*7* I P resen t V alue. : i.' i * NPV is a number, with dollar units, found
by discounting all cash flows to time zero. Its mathematical relationships are as follows:
NPV = (PW - i% - N)Sj ...(1)
Where Sj = net cash flow in year j, including salvage value.
PW = present worth factor or discount factor, single payment
N = number of years; usually the1ec&lJmic life o f the investment. Discount factors
are based on a somewhat arbitrary interest rate, usually dictated by the
management. This is the cut off rate, and any investment promising a lower yield is
considered unacceptable.
A simplified version of equation (1) above follows
NPV = (SPW - % - N ) A - P ...(2)
CR 1 = . A i / P ....(3)
Where A 1 = uniform annual returns after tax
SPW = series present worth factor
P = total initial investment, principal or present worth of future amounts.
CR 1 = capital recovery factor after tax = A 1/P
Yield is interest rate based on CR 1 and zero is the time o f delivery o f the ship. This method of
cash flow analysis is usually as accurate as forecasting techniques permit.
Net present value has two inherent weaknesses: tends to favour massive
investments and it can be misleading if alternatives have different lives. The first weakness may
be overcome by using the net present value per dollar of investment, also known as net
present value index (NPVI),
NPVI = NPV .(41
P
77
I f a ltern ativ es h ave d ifferen t lives, N P V w ill tend to favour the lo n g er lived. T his
disto rtio n can be elim inated b y m ultip ly in g each N P V by a capital rec o v e ry factor based on
the sam e d isc o u n t rate, but a p p ro p riate to the individual life ex p ectan ces. T his criterion is
called the a v e ra g e annual b enefit, A A B :
A A B = ( C R - i% - N ) N P V ... (5)
T o elim in ate b o th w eak n esses in the use o f N P V , the third variation, th e av erag e
annual b en efit index is introduced:
AABI = AAB (6)

P
th at is, A A B p er d o lla r invested
2.7.2. Y IE L D
Y ield is a w id ely accepted m easure o f m erit. It is also called d iscounted cash

flow rate o f return (D C F ), in tern ally generated interest rate o f return, p ro fitab ility index.
perc e n ta g e return, investors m eth o d , e q u iv a len t return on inv estm en t, etc. In short, yield is
that interest rate that leads to an N P V o f zero:
M M
NPV = I Ar PQ ... 7 o r P0 = 1 A , (81
n = lT T 7 ) l ii
w h ere N P V eq u als zero and i is equal to IRR, internal rate o f return.
L ike N P V , yield requires a p red ictio n o f future revenues. R ath er th an a ssig n in g an interest
rate yield co uld be d eterm in ed by finding that rate that w ill m ake the p rese n t w orth o f future
after tax cash flow s equal to the p resen t w orth o f the investm ents. Y ield can be based on the
after tax capital recovery factor, C R 1 :
CR = A1 ...... (9) sim ila r to (3) above.

P
Y ield avoids the sho rtco m in g s o f N P V in that it does not g iv e u n fair a d v an tag e to larger
inv estm en ts o r those w ith lo n g er lives. I f ail alternatives have equal lives, then the alternative
78
w ith h ig h est v alue o f C R 1 w ill a u to m a tic ally h ave th e hig h est y ield .
S im ilarly , th e altern ativ e w ith th e h ig h est capital re c o v e ry fac to r b e fo re tax (C R ) will
n o rm ally e n jo y th e h ig h e st capital rec o v e ry factor a fte r tax (C R 1)
M ost trad itio n al m aritim e nations in p o se an an n u al tax o n c o rp o ra te e a rn in g s. T y p ical tax rates

range from 30 to 50 p e rc e n t o f the b e fo re -ta x c a sh flow m in u s c e rtain tax sh ield s, such as
dep reciatio n a llo catio n , D, and certain tech n ical d ec isio n s are b ased on th e sm ip le stra ig h t line, all
eq u ity approach. T h e true im pact o f tax is best illu strated in feasib ility stu d ies. T h is leads to the
follow ing rela tio n sh ip b e tw e en cash flow s b e fo re an d a fte r tax.
A 1 = A (1-t) + t_ P ....(10)
N
D iv id in g th ro u g h b y th e in v estm en t, P:
A1 = A (1-t) + t ......(11)
P r P : N;
but A1 = CR1 ........ (12), sim ila r to (3 ) & (9)
P
and A = CR ..... (1 3 ), capital rec o v e ry fac to r b e fo re tax

P
so C R 1 = C R (1-t) + t ............... (14)
N
and CR = C R 1 - t/N ..... (15)
I-t
S ince t and N are sam e for all a lte rn a tiv e s, C R w ill vary d ire c tly w ith
C R 1 w hich w ill in tu rn v a ry w ith yield.
In selectin g an in terest rate, it is th erefo re im p o rtan t to dev elo p so m e feelin g s for w h at prudent
m angers look upon as rea so n a b le rates w ith regard to c o st o f cap ital. M a n y b u sin e ss m anagers
su p p lem en t th e ir e q u ity capital w ith b o rro w ed funds, usu ally from the b a n k , w h ich resu lts to the
ex pansion o f cap ital, leverage. T his m ean s that any sig in fic a n t d e g re e o f lev erag e adds to the
stock h o ld er's risk. T h is leads to the c o m m o n sen se c o n c lu sio n that lev e rag e w h en em p lo y ed ,
should be aim ed a t in cre asin g the rate o f retu rn on e q u ity cap ital c o m m e n su ra te
79
w ith the added risk (B en fo rd , 1984).
A project that earn s less th an the m in im u m a ttraa c tiv e rate o f return (M A R R ) w ill c a u se
retu rn s o f e q u ity to fall b e lo w the m in im u m a ttrac tiv e level. T h is a p p ro x im a te
relatio n sh ip sh o u ld obtain:
fo i o + f[3 iB = k 1
f0 = p ro p o rtio n o f e q u ity cap ital
b = m in im u m retu rn o n e q u ity p ercen t
fn = m in im u m retu rn o f b o rro w ed capital = 1-fo
in = ban k interest, p ercen t
i' = o v erall y ield o n total c a p ital, percent.

G iv en th at c o st o f cap ital to b e e q u iv a le n t to th e e sta b lish e d o v e ra ll y ield , th e actual rate
achieved, that is y ield, w o u ld ex c ee d the c u t o f f rate. In re la tiv e ly ris k y v e n tu re s, a m inim um
after-tax yield o f 15 p ercen t h as been su g g e ste d by B enford, (1984).
T he fo llw ing k ey in te rest rate s p e r a n n u m p rev a ilin g as o f July, 1997 m u s t b e n o ted :
P rim e L ending Low H igh

S a v in g D ep o sit 15% 21%
T re asu ry B ill 2% 7%
Issued R ate 9 .6 5 % 12.369%
M RR 13.5% 13.5%
In flatio n R ate 21 .4 % 23%
S ource: Bi - M o n th ly B u sin ess &E co n o m ic D ig est U nited B ank for A fric a P ic L agos.
N ig e ria M ay/June, 1997.
2.7.3 AVERAGE ANNUAL COST
T h e th ird lead in g m ea su re o f m erit is th e A verage A nn u al C o st. A A C .
w hich is
defin ed as that unifo rm cash flow th a t is equal in p resen t value to so m e n o n -u n ifo rm p a tte rn o f
80
largely negative cash flows. It usually looks only at investments and operating costs, ignoring
revenues. In other words, we can look at cases where incomes are unknown but equal for
every alternative, or are simply zero. This can be expressed mathematically as follows:
PV = P + (SPW - i% - N ) Y ........ (17)
AAC = (CR - i % - N ) P + Y .............. (18)
RFR = AAC = ACCR + Y = (CR -i - NT) P + Y ....(19)

c. e o
where C = annual transport capacity, tonnes
Y = annual operating costs
RFR = Required freight rate
AAC = Average annual cost
ACCR = Annual cost o f capital recovery
The first two criteria are present value (PV) and average annual cost (AAC).
They ae equivalent and will indicate optima when all alternatives have equal lives. If all
alternatives have equal revenues then the one with minimum AAC will be the most desirable
provided all are equal capability. The interest rate used is usually taken as some target rate,
that is, a few percentage points higher than the minimum acceptable rate used in NPV. The
required freight rate, RFR in cargo ship is the cost per tonne of cargo delivered on a given
trade route. It is a valuable criterion, much used in the maritime industry for studying the
feasibility of new particular engineering concepts or optimising the details of any particular
concept. In effect, RFR is the amount the shipowner must charge his customer if the
shipowner is to earn a reasonable after-tax return on his investment. This concept implies that
81
the best ship for trade is the one that can offer the service at the lowest unit cost to the
customer while returning to the owner a fixed, reasonable level of profitability after tax. The
quantitative value of the rate of return on investment or yield is the measure of merit that
reflects the performance in operation of marine transportation system, while the required
freight rate, RFR and NPV provided a reasonable range of predictable incomes that would
give the decision maker a wide menu of designs to choose irom in quest for a model ship.
2 ,8 COMPUTER APPLICATIONS IN BASIC SHIP DESIGN
The late 1960s and 1970s saw a number of major new developments which in one
way or another had an impact on the general basic design problem. Among the
most significant was the computer. To complete the basic design, several
iterations around the basic design band are required to ensure that the ship is
technically sound and can meet all of the ship design requirements and computers
are used to do these calculations for detailed balancing.
The early development o f computer design programes has
been described in papers by Murphy, Sabat and Taylor (196S), Mandel and Leopold (1966),
Gilfillan (1966-67), Fisher (1972), Eames and Drummond (1976), Yagle (1974). Most of
these programs were written for batch computers in which the data were inputs on cards or a
paper tape, the calculations made using fixed formulas and a mountain of answers printed at a
high speed on a line printer. This computer method was not particularly suitable for the batch
machine in which the process is highly impersonal.
Preliminary design is actually a process in which a
designer through experience, is personally involved in the development of the design, in terms
of concept and methods used and also in the reasonableness of answers obtained. To aid these
82
features, further research and development project in this area resulted in computer-aided
design and manufacture (CAD/CAM) software programmes suitable for personal computers,
PCs. These computer systems have been developed to accomplish the basic design rapidly,
exactly and within a limited time interval (Han, 1983; CODES, 1987; Imoue et al, 1986; Beir,
1988; Lee et al, 1989). Figure 2 * 9 is a typical model regarded as a computer representation
of the design process and design methods of an application domain to enable simulating the
design process - CAD.
Most of the early lofting/manufacture systems, CAM were
gradually extended back into CAD so that structural drawings could be prepared through them
as well as a direct interrelation with the existing scientific design programs such as:
* Hydrostatics
* Stability Curves
* Subdivision
* Damage Stability
* Longitudinal strength
* Launching
* Capacities
* New Hull Form Development
There are concerted efforts to develop a closed and fully integrated software
package covering all major aspects of shipbuilding (Lee, 1981). Nevertheless, there are
computer programs developed by shipyards tailored to their needs for timely design, cost
savings and productivity increase (Marintek, 1987; Northstar, 1990; Butman & Hunt, 1994).
Butman, et al (1994) describes the computer programs DESIGN AND VENTURE (used in
this research work) which rely on functional relationships to prepare preliminary design cost
83
F igure317 Design
model and system
wen
m
CA m
configuration
estimates for ships. The detailed output includes the following:
Ship design particulars
Steel weight and cost
Machinery weight and cost
Outfit weight and cost
Hydrodynamic data
Propulsion power
Ship cost estimate and labour-hours
Economic summary
Internal Rate of Return, IR R
Annual cash flow analysis for life
Ship operating data
4 Shipowner construction payment schedule.
THE LEARNING CURVE
Certain details of this research would seem incomplete
without studying the learning curve effect and savings that should naturally occur and are
usually counted on when budgeting a succession of similar ship constructions. As the first one
is built, mistakes are made and lessons are learned, hopefully the same mistakes will not be
repeated (Black, 1989). The learning experience during ship construction reduces the amount
of effort needed to build subsequent and series of similar ships leading to increase in
productivity and reduced costs.
In shipbuilding and other manufacturing activities, it
has been observed by Hancock and Bayha in (Salvendy, 1982) that productivity increases with
85
time. This improvement is associated with the repetitive manufacture of identical- ships or
products which wili improve the performance or efficiency of individual workers and the
overall manufacturing organisation. This characteristic may be employed to successfully
predict the labour-hours required for building a series of same class ships given the tabour-
hour estimate for the first vessel.
The factors that affect the rate at which people and
organizations learn to do repetitive jobs include complexity of the project, capabilities of
project and the organization, and time between the repetitive tasks. Figure 2.-0 shows the
direct labour-hours curve for a series of identical ships. The curve indicates a continuous
improvement in the labour-hours required per ship. The diminishing rate for productivity
improvement suggests an exponential relationship between labour-hour per ship and the
cumulative ships constructed. When plotted on a log-Iog paper in Figure 2.*?.' the same data
show as a straight line. Thus, the functional form is:
L = KV* (1)
where L = man power per vessel
K= man power for first vessel
V= number o f vessels
C= constant slope of learning curve, always negative because of
increasing experience and efficiency.
Taking the logarithms of both sides gives.
Log L = log K + C log V ...(2)
which is the equation of a straight line in the form:
Y = CX + K ... (3)
Where C is the slope and K is the intercept of the fitted line.
86
Number of units
Figure 2. Q . Direct labour -hours against number of units
c
3
0Q_)
e3
0
c1 log L = log K + c log. V
c
(0
E
i
3
O
-Q
<0
I
Number of units
Figure 2.7? Log -log plot of learning curve for a

series o f identical ships.
87
Note that every time cumulative production is doubled, the effort per unit required is a
constant, 2C of what it has been. In other words, every time N, the number o f vessels is
doubled, then L, the direct labour-hours per vessel, decreases by a fixed percentage (Mark-
Forlist, 1976) This suggests that shipbuilding learning rates are between 85 and 98 percent
(Couch, 1974) The general relationship for calculating the slope constant o f learning curve
given a decimal ratio o f learning for DOUBLED production is.
-c = 2_-log Lc ($)
log 2 ''
or Lp = 10 exp (2 +C log 2 )...... (5)
Furthermore, the relationship for the slope, given a
decimal learning ratio, Lp is :
C = JogLp ..... (6)

log 2
or C = In Lp ..... (7)
In2
Here are some slope constants and percentage learning ratios in the typical shipbuilding
range:
Percentage Learning Ratio Slope Constant

100 0.0
98 -.0291
96 -.0589
94 -.0893
92 -.1203
90 -.1520
To calculate the average labour for Vessels Na to N b, where N, is the first vessel
o f the series in the average Nb is the last vessel o f direct labour for included
vessels, it is necessary to sum the learning function over the vessels o f interest and
divided by the number o f vessels.
n
L (T) = I L(N) ....... (8)
i=l
and
88
fNb+ .5
J N , - .5 K V 'd V
L = __________________
(Nb + .5 ) - ( N ,- .5 ) * '
[K ( N ^ ^ - t K fN ^ S y n
[ 1-c ][ 1 -c ]
Nb - N , + 1
K [(Nb- .5),c - (N.- .5 ) '* ]
(l-c )fb -N . + l )
*t
24.0 Inflation and Labour . C e s t ^
Given the learning rate, it is feasible to predict future labour-hours for identical
units o f manufacture. If the labour rate average for all trade is known, the product o f labour-
hours and the hourly wage rate will provide the direct labour cost for vessel. However, there
is usually an annual inflation in labour costs. When it is required to make comparision o f
labour c o sts su b ject to productivity improvement and inflation, the present worth o f the costs
in terms o f zero time value o f money is the appropriate measure.
To deal with inflation rate and an interest rate simultaneously, it is necessary to
calculate an equivalent interest rate which incorporates both factors and provides a present
w orth o r annual equivalent cost in terms o f zero time value o f money. An inflated currency is
w o rth less in zero time so that the discount rate must increase with inflation.
E quivalent i = (1 +i)( 1+ if) -1
i = in + if+ inir
w here i = equivalent interest
in = interest without inflation
if = inflation.
89
The basic uses o f the learning curve can be summarized as follows:
* It describes the relationship between output quantities and quantities o f
certain inputs, mainly direct labour hours when performing repetitive tasks.
* It portrays the concept that the cumulative average unit cost decreases
systematically by a common percentage each time the volume o f
production increases geometrically that is, by doubling.
* The learning curve is a very important managerial accounting tool found to
be helpful in forecasting o f labour input and its impact on various
economic decisions.
* By extension it is very useful in the investigation o f the cost behavioural
patterns, cost estimation and decision making (Belkaoui, 1986).
* The learning curves are applicable to all aspects o f construction
(production) planning and control where there are tasks subject to
improvement, by making forecasting easier, quicker and much more
accurate.
Estimation o f construction costs must take cognizance o f such factors that
positively affect the learning experience and its potential benefits.
METHODOLOGY
3.1 Introduction:
1
This research work involves the first two stages(deve!opment o f owners requirements, preliminary/concept
design, that is, basic design) o f shipbuilding process. This results in the determination o f major ship character
istics, permitting the preparation o f approximate construction costs.
3.2 Sources of Data:

Much o f the information used in the course o f this study were obtained from several sources including
policy statements by the Government, Maritime Organisations (Nigeria Ports Authority, Nigerian Maritime
Authority, Federal Ministry o f Transport, Nigenlock Pic.), Central Bank o f Authority, Federal Office o f Statis
tics. Other sources included, International Maritime Organisation, Shipbuilding Classification Societies,
Organisation for Economic Cooperation and Development (OECD), the U.S. Maritime Administration, Insti
tute o f Marine Engineers, Society o f Naval Architects and Marine Engineers and the seat o f modern shipbuilding
activities in Asia - South Korea and Japan, and the European Union.
Although shipbuilding Industry for Ocean-going Vessels does not exist in Nigeria, the type and quantity o f
skills that would be needed in the Nigerian context were assumed to be not significantly different from those in
other countries. Therefore a study o f the type and manpower pattern in other countries was considered a useful
guide. To this effect useful information was gathered during my personal visit to Nigerdock pic, Lagos, Marinette
shipyard, Wisconsin, and National Steel and Shipbuilding Company, San Diego, California, and the Department
o f Naval Architecture and Marine Engineering University o f Michigan, Ann Arbor, Michigan, U.S.A., where
most o f the analysis was done using computer application.

3 :3-Methods of Data Analysis:
This section covers series o f techniques (methods) used in carrying out analysis o f the various data col
lected. Each technique measures an aspect o f the research work. These techniques are mission requirements
ship factors, physical constraints relating to dimensions compatible with operating features o f the various port.-
o f call; regression analysis, measures o f merit (IRR, RFR), cost estimation model and accuracy ratio. Oihei
methods used are trend line analysis which enables one to make predictions for the shipbuilding labour compeiv
x sation, learning curve and a computer programme.
9 1
3.3.1 Mission Requirement.
The Nigerian Shipping Market (SM), consists o f ship types(need replacement o f coverage or obsoleti
tonnage), Cargo types (dry, wet and combinations) expansion or modification o f services on an existing route
Shipping market therefore is a function o f ships types, types o f seaborne trade, volume o f seaborne trade, age o
ship etc.
SM = F(ships, cargo type, cargo throughput etc.)
3.3.2 Ship Factors:

Ship factors consist o f such factors as the principal dimensions, Length(L), Breadth(B), Depth(D), Displace
ment (or Weight), in tonnes.

A = Cb L B T xl.025(l+ s) = Wd + WL, tonnes (Watson 1977)
A = full displacement in tonnes. Lpp, B, T in meters.
Wd = gross deadweight in tonnes
WL= Lightship Weight in tonnes.
3.3.3 Physical Constraints:

Relate to dimensions compatible with theoperating features at the various ports o f call. Both length,
breadth, depths and drafts(T) at Nigerian ports areconstrained and a minimum cost solution is sought:
Minimum F (L,B,T,D,Cb)
Subject to L < 180m

T < 8m
Length-beam ratio 5.0 to 8.6
Beam-depth ratio 2.3 to 3.6
Block coefficient 0.6 to 0.90
Midship coefficient 0.97 to 0.996

Prismatic coefficient 0.595 to 0.856
Length-displacement ratio 4.5 to 7.6

92
A convenient ratio with this class of ships is the deadvyeight-displacement ratio (dwt/A). For a given service
speed (V/VL) or Froude number, (v/VgL) these are some factors which influence the value o f the dwt/A ratios;
(a) Generally, associated with higher dwt/A ratios; geared turbines:

Higher strength steel (HSS) hull structure aluminium superstructures, larger ships, higher density cargo.
(b) Generally, associated with lower dwt/A ratios:

Directly connected diesel main engine, extensive cargo handling gear, self-unloading equipment,
many decks and bulk heads, smaller ship,, long, thin ships, bulky cargo and passenger accommodations.
For this class of ships, knowing the deadweight, one may obtain the principal dimension, L, B, and D from
sources such as the graph of Figure 3.1 for tankers and combination bulk carriers of moderate sicze (Kiss, 1980). In
this graph the curves of L concide and the curves ofB and D almost coincide for these two types of ships.
Graphs such as the one of Figure 3.2 are used to obtain the dw/A ratio for a given relative speed, V/Vl . Having the
required deadweight, then one may obtain the displacement. Using the previously mentioned graph of Fig. 3.1, to
obtain L, B and D, for a required deadweight, then calculating F from the 1966 Freeboard Convertion, the maximum
draft T may be obtained from the expression T = D-F. Then, selecting an appropriate block coefficient, CB, the
displacement may be readily calculated by using the equation:
A = (CBLpp BT/35 (t+s

From the latter equation one obtains the displacement of <. seagoing ship in long tons when the principal
dimensions are expressed in feet and S represent the displacement of the shed, stem and appendages expressed
as a fraction of the mdlded displacement.
Watson (1977) gives the following equation for the displacement, A , of a ship o f this class
A = CB^ BT x 1.025(1+S) = WD+ WL
where Co = molded block coefficeint at draft T on LPP

A = full displacement in tonnes
Lpp = B, and T in m
S = as previously defined
WD = gross deadweight in tonnes.
WL = lightship weight in tonnes.
93
140
L
0. L PP
B
GO
20 ''o 1 cci-'.-i"
'1 L40
% I0 S * ^ o '
> 5 q GBAPH OF DISPLACEMENT VERSI

PRINCIPAL DIM0ISIGNS, L.B.D.
deadweight - displacement ratio

F ig u r e 3 .0 .
VERSUS RELATIVE SPEED.
3.3.4 Quantitative Analysis:
9
This analytical tool is employed to show the demand in the transportation requirements generated by
international seaborne trade for the period( 1979/80-1988).
Demand for particular ships and shipping services evolved with changes in the patterns of trade. The
Cargo throughput(CT) is a function of volume of cargo types and types of ships;
CTt = CT,+ CT, + CT, ...................... CT^ tonnes

C l, + C l, +C I 3 ............................. 1* = 1,
CTt c t t CTt ctt
Where CTt = The cargo throughput, tonnes
CT, , CT, , C T j.............. CT^ are cargo throughput for other types o f cargo.
1, + L + l 3 1*
CTt CTt CTt . CTt
are ratios, used to ascertain the proportion of each ship type. The target market sector or shipbuilding
niche was derived with this formular.
The growth rate per annum, r is given by this formula
r = ( \ / v F 0 x io o %
where r = growth rate per annum, % ; n = number of years in the period.
vn = Vol. of cargo in year, n

v = Vol of cargo in year, i
*
3 .3.5 Trend Line Analysis:

Trend Line Analysis enables one to make predictions on datofor future years, especially with trend in
international shipbuilding labour compensation, (wage rates). The Linear regression can be represented by
this formular: 95
Y = A + BX
A = Zy - B.ZX
n
B = n.I^ - ' Z x . Z ,
n.Zx* - (Ix)-
r = n.Zxy - Z x . Zy
\/ {n.Zx--(Zxr-}{nZr-(Zy)2}
Where A is a constant term

B is a regression coefficient
r is a correlation coefficient,
y is a dependent variable
x is an independent variable
3.3.6 Non-Linear Regression Analysis:

Regression Analysis. Benford(1980) has applied with considerable success, regression analysis to the
problem of estimating shipbuilding labour and material costs given the preliminary parameters of a ship,
including length, breadth, depth, block coefficient, speed and power.
C = ax", and modified to the cost-estimating system.

C = (M + DE + ES + DL x LR( 1 + 0H/10o)) x (1 + p/ 100),
where C = shipyard price estimate, $

M = cost of materials, $
DE = direct expenses or indirect $
ES = cost of dir'ect engineering services $
DL = direct production labour rate, $ /labour-hour
OH= percent of overhead expenses to direct production labour cost, %
P = profit as a percent of total cost estimates, %
The following is also a summary of the relationship derived for preliminary cost estimating;
96
Steel work direct labour cost:
C sl - K, W, 273 L l/3.
Cb
Outfit direct labour cost:
Col = K2 Ww
Machinery installation direct labour cost:
C mi = K 3 P k
Steel material cost:
Csm = IQ W s 1"0
Outfit material cost:
Com = K5 W00 95
Machinery material cost:
For diesel propulsion, C mm = IQ P 0 82

Where Kj = Constant depends on shipbuilders, system of units, and cost per unit.
W, = Steel weight

Cb = Block coefficient
W0 = Outfic weight
P = Service propulsion power.
3.3.7 Measures o f Merit:
1. Depreciation: Cost comparisons are made on an after tax basis. Depreciation

considered in determining tax base. The depreciation technique used in this study
is the sum-of-the-digits (SD): The general
formula takes the form of:
Ds = C; / n-m +1 n\
^0.5n(n+l)>^
Where Dm is the depreciation in year ni, n is the depreciable life, year, 10 years.
2. Yeild (or IRR):
Yield or the internally generated interest rate of return (IRR) is a widely accepted measure of
merit. It is the interest rate that leads to an NPV of Zero,
hi
NPV = Z A _ P Q or P0 = I An
n=l ( 1+I)n n=l (1+IRR)"
Where NPV equals zero and i is equal to IRR. Similar to NPV, yield requires a prediction of future
revenues, generated through freights. IRR can be based on the after tax capital recovery factor,
CR ; CR=A:
P
W here CR = capital recovery after tax

A = uniform annual returns after tax
P = initial investment, principal, or equity capital
For all alternatives that have equal lives, then the alternative with highest value of CR will automatical!
have the highest IRR. The ERR is used to compare the results obtained.
3. Equivalent Uniform A nnual C o st:
A useful and easily understood m easure o f merit is found by calculating the equivalent uniform annual co
in comparing alternatives.
Ak = (A/P, I, n) I (P/Aj, i, n)
j=i
where Ak = net annual cost, alternative K
Aj = net cash flow in year j
(A/P, i, n) = Capital recovery factor, CR
(P/A^ i, n) = future payment present worth factor.
This analysis requires a specific economic life, and a time value o f m oney. All capital and start-up cost,
salvage costs, and other one-time costs are converted to equivalent annual costs. Annual costs that are same for
each year can be used directly. Annual costs which are not same each year m ust be converted into equivalent
annual uniform amounts. A dcterministically constant operating costs for the vessel alternative is assumed. The
lowest-cost alternative is preferred.
98
4. R equired
Freight- R ate (R F R )
11 is tin economic
measure o f merit lor occim irimsporttiiulitis ulso.ilie umoiiiil
which must be charged per touue of-cargo transported annually to achieve a specified rale
o f return on an investment, and calculated as follows:
RFR = SAC (A/P. i. n) + AQC
ATC
where SAC = cost of th vessel
A/P = capital recovery factor or CR
i . = rate of return
n = economic life, years
AOC = annual operating cost
ATC = annual tonnes of cargo canied or C
The. interest rate, tax rate, depreciation method, and rate o f return are used to
determine the capital recovery. RFR can be calculated on a before-taxes basis; however,
after-taxes, RFR could be determined. Figure 3.3 shows an interesting study of the
relationship among speed, length, and block coefficient versus the RFR for a bulk carrier
(Scher and Benford, 1980). The study identifies optimum design or helps to assess the
trade-offs. Figure 3.4 shows the change in internal rate of return as the revenue rate (RFR)
increases from $0.004/tonne-mile _to $0.008/tonne-mile.
0.7* 0.78
Figure 3.3P**/uirtd freight rate (RFR) a t a function ofbiock

coefficient and design speed-length ratio. "
*?

20
.004
f tern ((nanw^M t)
Figure 3 . tficm itiuity to revenue rate
99.
A c c u r a c y R a ti o : When comparing the estimated costs with the actual forecasted costs of built ship, there is
need to establish the accuracy ratio of past estimates', AR. The check of the calculated values are made by
calculating the ratio between the deviated value and the forecasted value, AR.
Where Vc = calculated value

Vf = forecasted value
t
Note that the construction cost model, Budget estimates have estimate accuracy that should be within
+ 30% to -15%.
6 . C o s t p e r U n it o f O u tp u t:
Comparative costs were used to measure and compare the shipbuilding effort in each country studied. The
basic unit of output used being the compensated Gross Ton (CGT), COST/CGT (One CGT equals one DWT
times a compensation factor).
3.3.8. Learning Curve:

It is used to predict the future direct labour costs for identical series of manufacture over some period,
taking into consideration thd shipbuilding labour for the first ship, shipbuilding labour rate, anticipated infla
tion rate during the period, and shipbuilders cost of money (interest rate) and also the learning rate as fol
lows:
Calculating the equivalent internal rate with inflation:
Equivalent i = (1 + in)(l -+- if) - 1

i in + i,.1 + in irf
where i inflation
inflation
Calculating annual labour based on 96 percent learning:
L = KV"
where L = manpower for per vessel, hours
K = manpower for first vessel, hours
V = number of vessels
C = constant slope of learningcurve, always negative because of increasing experience
and efficiency = 0.0589 for 96% learning Present worth of labour($) = wage rate x
manpower x (P/F, i, n);
where wage rate = shipbuilding labour rate,$/hr.

manpower = direct labour, hours
(P/F, i,n) = present worth factor
3.3.9 Computer Programmes:

To co m p lete the designs within a limited time interval, the computer system, VENTURE(Butman,1995)
and FASTSHIP (NAME University o f Michucjan 1994) wasused to accomplish the conceptual / preliminary
design rapidly and exactly. The measure-of- merit for the handysize used in the programm VENTURE / FASTSHIP
is the internal ra te o f return (IRR). The computer system accepts data describing the characteristics o f the
handysize; co st information; operating data; financial information; and shipbuilding.
T he computer programme defines the optimum characteristics and speed for a vessel o f given length, the de
tailed programme output includes:

* Ship design particulars
* Steel weight cost
* Machinery weight and cost
* Outfit weight and cost
* H ydrodynam ic d a ta
* P ro p u lsio n p o w e r
* Ship cost and price estimate
* Economic summary.,
* Annual cash flow for life-cycle
* Ship operating data
* Construction payment schedule
The input d a ta requirements are described in APPENDIX III.
101
r
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
This study involves the estimation of the new ship construction costs
through basic design and based on a comparative study among ship-building
nations. Kiss (1980) and Palmer (1992) state:
Basic design encompasses both concept design and preliminary
design. It results in the determination of major ship characteristics
permitting an estimate of construction cost.
This chapter covers the data presentation and analysis of the study. All
the data collected, which are relevant to the objectives of the study and also in
relation to the techniques described in Chapter 3 are discussed and analysed.
Other important data, which were collected in the course of the study are also
presented and discussed in this chapter. Subsequently there are three parts for
this analysis:
a. Selection of the ship
b. Construction cost estimate
c. General discussion.
4.2 Selection of the ship
To arrive at the considered and objective strategy, a number of factors
were evaluated including mission requirements.
t02
4.2.1 Mission Requirements
The.demand for ships like demand for shipping services is derived from the
demand for seaborne trade. The analysis of the Nigerias shipping market over the period:
(1979/80 1988), in Table 4.1 follows and would suggest that the demand for particular
ships and shipping services involved with changes in the patterns of trade; with bulk
carriers constituting over 60 percent of the shipping market.
The results obtained are summarized in an non-dimensional format in Table 4.2
and Figure 4.1. These were derived from Table 4.1 on Cargo Throughput handled at
Nigerian Port (Exclusive of Crude Oil Terminals); 1979/80 - 1988. Based on the
methodology of Mission Requirement as contained in section 3.2.1 of Chapter 3, in
which, shipping market {SM} is a function of ship types, types o f seaborne trade, volume
of seaborne trade, age of ship, etc.:
SM = f (ship types, cargo type, cargo throughput, age of ship, speed etc).
From Table 4.1, the analysis of this data shows that in 1979-80 General cargo vessels
lifted 43.7%, container vessels carried 6.2%, fishing vessels lifted 2.4% and Bulk carriers
lifted 47.8% of the cargo throughput respectively, in accordance with the formula (see
3.3.4)
103
TABUS 4 . 1
CARGO THROUGHPUT HANDLED AT NIGERIAN PORTS (EXCLUSIVE OP CRUDE OIL

TERMINALS): 1 9 7 9 /8 0 - 1 9 8 8
M E R C H A N D ISE S T R A N S IT A N T P A R L E S P O R T S DU N IG E R IA (A L 'E X C L U S IO N D ES
T E R M IN A U X PETRO LIERSJ: 1 9 7 9 /8 0 -1 9BB
GENERAL CARGO CONTAINER WHEAT GRAINS OFFAL

YEAR
INWARD OUT IOTAI INWARD IXII- IOTAI INWARD OUT IOTAL
WARD WARO WARD
1979-80 7501287 331947 7833234 1064633 38947 1103580 1143103 126736 1269839
April-
Dec. '80 7811794 430032 2241826 1092318 18960 1111278 854122 111991 766113
1981 11064649 509492 11574141 2012582 31130 2043718 1198051 92142 1290193
1982 9207303 340080 9547383 1695740 38912 1734652 1328253 94745 1422998
1983 6176934 285109 6462043 1091956 57123 1149079 1276261 54570 1330831
1984 3837247 143593 3980840 1029767 39576 1069343 1597460 3000 1600460
1985 5101309 179968 5281277 1057595 75121 1132716 1847548
1847548
1986 2892319 253538 3145857 1020882 95489 1116371 946371 _ 946371
1987 2623775 188781 2812S56 845621 193496 1039117 229118 _ 229118
1988* 2136008 298618 2434626 1032052 289978 1322030 10048 10048
FISH DRY BULK VEGETABLE OIL

YEAR : ' i t r i .A . r r- in ; I V . - ? -
INWARD OUT TOTAL INWARD OUT TOTAL INWARD OUT TOTAL
WARD WARD WARD
1979-80 423004 423004 1336037 101714 1437751 171340 142880 314220
April-
Dee. '80 344810 _ 344810 1467115 137828 1604943 161768 224J59__ -1 8 4 2 2 7
1981 523222 523222 2361302 127943 2489245 181247 105969 287216
1982 512479 512479 2861506 117332 2978838 263200 26305 289505
1983 322246 322246 2670729 71053 2741782 113361 25312 138673
1984 179302 135 179437 1560367 52791 1613158 40790 5502 46292
1985 218373 24 218397 1260059 59150 1319209 22715 9288 32003
1986 192110 192110 676957 87226 764183 732^8 4048 77316
1987 228090 228090 1120584 236913 1357497 _
1988* 256068 47 256115 1358895 540747 1899642 5000 5000
PETROLEUM TOTAL CARGO TOTAL

YEAR PRODUCTS/OTHERS CARGO
THROUGH
INWARD OUT TOTAL INWARD OUT PUT
WARD WARD
1979-80 3945383 1612191 5557574 15584787 2354415 17939202
April-
Dee. '80 2666143 1364145 4033488 14401270 2085415 16486685
1981 3387921 2047066 5434987 20728974 2913742 23642716
1982 4205316 1920058 6125374 20073797 2537432 22611229
1983 4743022 1853533 6596555 16394509 2346700 18741209
1984 4127484 2034088 6161572 12372417 2278685 14651102
1985 3946340 2624189 6570529 13453939 2947740 16401679
1986 4049152 1983219 6032371 9851059 2423520 12274579
1987 4240818 1630394 5871212 9288006 2249584 11537590
1988* 2980187 2376042 5356229 7773258 3510432 11283690
+ Provisional Figure
TOV
TABUS 4 .2
Cargo Throughput Handled at Nlgarian Ports
(Exclusive o f Crude Oil Terminals) 1 9 7 9 / 8 0
Year General Container Fish Ccnbined Bulk Total

Cargo Carrier
1 9 7 9 - 80 43.7 6.2 2.4 47.7 100.00
April- 50.0 6.7 2.1 41.2 100.00
Dec, 1980
1981 49.0 8.6 2.2 40.2 100.00
1982 42.2 7.7 2.3 47.8 100.00

1983 34.5 6.1 1.7 57.7 100.00
1984 27.2 7.3 1.2 64.3 100.00
1985 32.2 6.9 1.3 59.6 100.00

1986 25.6 9.1 1.6 63.7 100.00
1987 24.4 9.0 2.0 64.6 100.00
1988 21.6 11.7 2.3 64.4 100.00
SOURCE: C a lc u la t-* ^
70 t
60
of F le e t S e c t o r
50
GBsBVLGARGO
40
-g-OCKT/^BR
30
RSH
-o-Od^BNHOBLAK
20
e\* 10 -
i CSJ <0 00
00 00 00 00
^ O o cn O) cn CD
CC UJ oo
Cl q -
Year
FIGURE 4.1 TROD IN SHIPPING MARKET, DIVIDED IN SHIP TSfPES.

105
CTg CTc CFf CB CTt
+ + + = = 1 or 100%
CTt CTt CTt CTt CTt
Where CTc = General cargo, tonnes

CTc = Container cargo, tonnes
CTF = Fish, tonnes
CTa = Bulk carrier cargo, tonnes
CT t = Cargo throughput, tonnes
The rest o f the values w ere sum m arized in Table 4.2 and the trend in
shipping m arket is show n in Figure 4.1.
From this analysis, the m arket trend for this period show s a decreasing
volum e o f cargo lifted by general cargo vessels and an increasing volume of
bulk com m odities carried by bulk carriers w hile the volum e o f cargo lifted by
contain er v essels and fishing vessels tend to remain the same. The largest
segm ent in this p o ten tial m arket, bulk carriers (the w orkhorses o f the sea)
account for o ver 60 percen t o f the existing m arket.
- D erived D em and: m ark e t volume, m arket share, T arget m arket sector.

It can be inferred from this analysis that the product-m ix/m arine trans
p ortation system for this study is the bulk carrier, having been found to satisfy
a good proportion o f this shipping m arket. O ther reasons for this choice
106
include the rapid fall in the share o f the general cargo ships in bulk trades as
the result o f the rapid growth in the bulk com bined fleet. According to Fearnley
and Egers C o. Ltd., (1985), the annual growth rate globally w ould be 5.1
percent because o f the decline in the share o f general cargo ships.
But a further analysis o f the demand for this product - m ix (bulk carrier)
reveals an annual growth rate o f 3 .0 5 percent for this target market sector, a
positive indicator and an upward trend in the foreseeable future. Refer to
section 3 .3 .4 on the growth rate per annuam, r:
~l)x 100%
= (10 6 4 , 4 - 1 ) X 1 0 0 % = 3 .05%
47 . 7
4 .2 .2 N u m b er and T ypes o f Sh ip
A good insight into the needs o f the shipping industry is obtained with
respect to the number o f merchant ships calling at the Nigerian Ports. By taking
account o f the market characteristics, a com petitive lead would be gained. An
examination o f the cargo types involved in the seaborne trade and the respective
ship types used in lifting them over a period o f ten years (1 979/80 to 1988)
indicates four types o f vessels (excluding oil tankers; and refer to Table 4.2):
- General cargo
- Containers
- Fishing trawlers
107

- Bulk carriers (dry bulk, liquid bulk, oil).
The sizing of the future fleet and determining the correct quantity of new
and replacement tonnage requires a careful analysis of costs and benefits that
are inherently difficult to quantity, and therefore outside the scope of this study.
The governments estimate of ISO new ships iii the national fleet can be used
as the notional figure for ship demand.
4.2.3 Age Profile of the National Fleet
- Replacement of overage ofobsolete tonnage. An analysis of the age
profile of the fleet in the defunct Nigerian National Shipping Line (NNSL) in
Table 4.3 indicates that they were mostly built in 1980. An example is MV
RIVER NGADA that was built in November, 1980. They have exceeded their
average lifetime of 15 years and would need to be scrapped and replaced
according to Table 4.4 on Lifetime, T in years, divided on ship types, that is,
For T > 15 years, the ship is average or obsolete and need to be
replaced.
In 1995, NNSL became bankrupt and its remaining vessels and assets were
liquidated.
Meanwhile a new company, National Unity Line (NUL) replaced NNSL
and owns only one ship, a container vessel, MV ABUJA, 6270 DWT purchased
at $20 million in 1995. But according to Useni (1985), about 150 new ships,
108
ZIHLB 4 .5
SHIPS OWNED BY NIGERIAN NATIONAL SHIPPING LINE
Name Gross Simmer Si>eed Passen Dead Net Year

Tonnage L/jbxi Knots gers Hflfiight Tonnage B u ilt
* -f* D r a ft
MV R.Asab 10,9)35,4)3 3.45m 16 knots 12|*ass 12,000 5,6'35Tons Jul.79
MV R.Mada 10,985.48 8.45m 18- " N il 12,000 5,634 Ajg.79

*
MV R.Andoni 10,985,48 8.45m |18 N il 12,000 5,600 '* Oct.79
MV R.OS36 . 10,985.48 8.45m 19 12pass 1 2 ,0 0 0 5,600 " Itec.79

MV R.Ngada 13,362,58 9.15m 19 6 '* 16,000 6,745 " Ncv.80
MV R.Ikân 13,362.58 9.15m 18 M 6 16,000 6,745 Pug.8Q
MV R.Agada 13,362,58 9.17m 18 " 6 " 16,000 12,230 May.79
MV R.Oji 13,165 9.17m 18 6 16,000 12,230 Jul.79
MV R.Majidu 13,165 9.17m 18 M 6 16,000 12,230 Ltec.79
MV R.Gurara 13,165 9.17m 18 6 " 16,000 12,230 Mar.80
MV R.Oshun 13,165 9.17m 18 " 6 16,000 12,230 Afri.80
MV R.0gbe3e 13,165 9.17ra 18 6 " 16,000 12,230 May.80

* 'J*
MV R.Maje 13,165 9.17m 18 6 " 16,000 12,230 Jul.80
SOI)fcJi: NKJERLINE, MARCH 1 9 3 9 .

113,1 4.4
L ife tim e in years, divided on ship types
Est irreted
I i fe t ime
General cargo 0-8000 20

General cargo 8-14000 18
General cargo 14000 + 15
Bulk carr iers 10-14000 15
Bulk carr iers 40-80000 15
Buik c a rrie rs 80000 + 15
Tankers 0-60000 15
Tankers 60-150000 15
Tankers 150000 15
&LRCE: B & W DIESEL, QOPBSHflGBM, Cm/ARK. 1980.
each with 20,000 dwt capacity would be needed to fill the yawning void in the
national fleet.
4.2.4 Demand on ship size ranges
Bulk carriers are classed according to function, size and generic ship type
but correspond very roughly to (Scot, 1996; Hunt, 1994):
* Small ships (below 5,000 dwt),
* Sub-handysize (5,000 to around 20,000 dwt),
* Handysize/.Handymax ( 20,000 up to around 45,000 dwt),
* Panamax (60,000 to 90,000 dwt),
* Capsize (100,000 to 125,000 dwt),
* Hamptonmax (130,000 to 150,000 dwt),
* VLBC (160,000 to 300,000 dwt),
* ULBC (320,000 to 500,000 dwt).
One circumstance that will tend to increase the average ship size is the economy
of scale that can be obtained and that a larger ship would bemore economical.
As suggested in Table 4.5 (Butman, 1994) economies of scalehave led to the
design and construction of ever-larger crude oil carriers. Portlimitations on
vessel draft have been the only restraining factor on the maximum size, as
evidenced by the 8 meters draft limitation on Nigerian ports.
ill
TABLE 4.5
r~ T y p i c a l Tanker Dimensions
dwt Length Beam Draft
16,500 532* 70* 30.6*
100.000 8611 125* 49.61
250.000 1,141* 170* 65.4*
500,00 1,130* 233* 82.0*
Source: Butman (1994).
In replacing the 16,000 DWT aging ship (Defender) in the national fleet
the decision would be to substitute it with a new ship (Challenger) in the range
of the Handysize/Handymax (20,000 up to around 45,000 DWT). The approach
combines economy of scale (a larger ship) with better operating economics (a
higher performance design) to meet growth in shipping demand.
Furthermore, construction costs per unit of cargo carrying capacity also
go down as ship size increases, see Figure 4.2:
C ost per dw t, S/DWT = 0.67 ( 10000 }a

0>i/vrF-as-oo )
' V .
Therefore, $/DWT = 0.61 for the 16,000 DWt (Defender)
and $/DWT = 0.57 for the 20,000 DWT (Challenger)
This cost obviously translates to approximately 7% in favour of the larger ship.
112
N o r a a l t t W fey R i r k t i Tra4
J in 1983 P r l c t i
8/OUT * 6 . 6 7
10000
OUT - 3500 f
/
e i i i i 1 i i i i
f i i i i I i i i r
OUT
X10"
lg.43L Construction dollars per dwt adjusted economy of scale for all ships
sro A v v e a , *
113
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission
4.2.5 Speed
Figure 4.3 presented by Schonknecht (1983) shows the general
relationship of speed versus payload for different vehicles, indicating the range
where that vehicle might be found to be practical. Generally, ship speeds faster
than 15 knots are economically justified only for high valued, general cargoes.
Bulk cargoes, such as iron ore or petroleum or palm oil, are relatively low
valued and thus not time sensitive. The average actual service speed of the bulk
fleet has been rather stable at 12.5 to 13 knots in the period, 1970-1975. Then
the speed was reduced to about 11.5 to 12 knots in the 1980s and seem to have
fluctuated a little. This reduction is due to increases in bunker prices and low
freight rates. The service speed range for the bulk carrier in this study is
assumed 10 to 15 knots.
4.2.6 Methods of Propulsion
Several major trends dominate recent maritime engines. One major
development has been the gradual demise of the steam engine in favour of the
low-speed and medium-speed diesels. Diesel engines have been used for
maritime purposes throughout this century. While commercial shipping has
turned to diesel engine propulsion as preferred prime movers, the worlds
navies have selected gas turbines for the majority of their non-nuclear
propulsion applications (Graham, 1992).
114
SpMd
Speed
and
site ranges for various types of v eh icle
115
<
In this study, see Figure 4.4, diesel engine of low-speed type has been
selected as the prime mover for its direct drive of ships propeller without any
speed-changing device and, therefore are restricted to an rpm for which efficient
propellers can be designed, generally below 300 rpm and possibly as low as 55
rpm at rated power.
4.2.7 Determination of Msyor Ship Characteristics
This entails a size requirement which displays the principal determinants
such as principal dimensions, tonnage, displacement, area and volume, which
may define ships size either by one set of them or in various combinations. The
size was determined based on navigational restrictions and physical constraints,
prevailing as the bulk carrier would service a wide variety of ports in the five
continents.
Principal Dimension (see section 3.3.2 of Chapter 3)
The principal dimensions are compatible with operating features at the
various ports of call. To this effect, draft of the -vessel is the primary design-
limiting dimension, see Table 4.6 on Dimensional Draft Limitations at selected
ports. The maximum draft presently operating in Nigerian port of Warri is
11.50 meters. Table 4.6 shows the maximum drafts available at Nigeria ports,
most ports at US East Cqpt, Europe, South America, and far East. Ships are
also built to maximum size, as limited by physical environment such as the
116
BASIC CO NCE PT S II
PRIME MOVER TRANSMISSION PROPULSOR
DIESEL ENG INE

(low s p e e d , reversing)
DIESEL E N G I N E
(medium or high s p e e d ,
reversing)
MECHANICAL
REDUCTION
GEAR
S T E A M TURBI NE
(with reversi ng e l e m e n t s )
FIXED-
PITCII
MECHANICAL PROPELLER
GA S TURBINE REDUCTION
(non-roverslng) GEAR
(r evers i ng)
DI ES EL E N G I N E ELECTRIC
(medium or high spo o d, DRIVE
non-revers i ng) r e v e rs i ng )
C O M B I N A T IO N DIESEL ELECTRIC
OR G A S T U R B I N E ( C O D O G ) DRIVE
(r e ve r s i ng)
MECHANICAL
REDUCTION
GEAR
COMBINATION
G A S TURBINE
AND S T E A M TURBINE
COGAS
MECHANICAL CONTROLLABLE-
REDUCTION PITCH
GEAR PROPELLER
Fig Principal a l t e r n a t i v e s in t h e se l e c t io n of a p ro p u l s i o n a r r a n g e m e n t
depth of water available at port facilities or other waterway limiting features
such as locks. Hence:
8.0m < T ^ 11.50m at Nigerian ports.
Typical of such navigational restrictions are the Suez Canal with a beam of 64m
and draft limit of 16.2m, the Panama Canal with a beam limit of 32.2m and a
draft of 13.0m and at the Dover and Malacca Straits with limit draft to about
20m.
118
TABLE 4.6
DIMENSIONAL DRAFT LIMITATIONS AT SELECTED PORTS
Port Maximum Draft, meters
NIGERIA:
Apapa 9.50
Third Apapa Wharf Extension 10.50
Tin Can Island Port 9.50
Port Harcourt 8.00
Warn, New Port 11.50
Calabar 8.00
U.S. EAST COAST:
Boston 10.70
New York 10.70
Baltimore 11.00
Norfolk 10.70
EUROPE:
Antwerp 11.30
London 10.70
Rotterdam 14.00
CANALS:
Suez CamaC 16.20

Panama Canal 13.00
NATURAL CHANELS:
Baltic Approaches 12.80-15.90

Dover Straits 20.00
Malacca Straits 20.00
SOURCE: NPA Bilingua, 1989; Marine Technology, vol. 3, 1992
119
In Nigeria, on the average, the maximum ship length permissible ranges
from 160m-180m. But vessels with lengths above 180-200 meters could be
allowed to berth on the special permission of the Harbour Master (NPA
Bilingua Report, 1989). Except for draft, all other dimensionswere allowed to
vary during optimization analysis. The parameters that were manipulated were
the length, beam, coefficient of forms, and the speed-power analysis based on
Series 60 data (Lewis, 1989). The nominal values are:
Length-beam ratio, L/B 5.0 to 8.6
Beam-depth ratio, B/D 2.3 to 3.6
Block coefficient, CB 0.6 to 0.90
Midship section coefficient, CM 0.97 to 0.996
Prismatic coefficient, CP 0.595 to 0.856
Length-displacement ratio, L/1/3 4.5 to 7.6
C argo
The Bulk carrier type such as tanker, ore carrier or liquid carrier (ex.
palm oil) is usually of the deadweight ship. It generally carries high density
cargo stowing between 0.419 and 1.53m3/tonne. Bulk commodities therefore
would be the cargo that could effectively utilize the size of vessels under
consideration. Of these, palm oil has the average density and has been
considered as the cargo for this trade. With a stowage factor of 1.09 cubic
120
metetsper tonne, palm oil would require a higher hold capacity for the same
cargo deadweight. For these reason, the vessel designs were based on palm oil
as the export cargo. Other cargoes considered include bauxite, 1.07 m3/tonne;
salt, 1.03 m3/tonne; Tung oil, 1.07 m3/tonne. Thomas (1957) gives stowage
factors for a wide variety of commodities and Table 4.7 shows approximate
stowage factors for a number of commodities.
4.2.1.3 Propulsion Plant
In selecting the propulsion plant, consideration was given to its capability
of operating within a wide range of speed typically encountered in both
restricted waterways and the oceans, and in high maneuering conditions. The
ship will have controllable-pitch propeller. In addition to the propeller the
vessel shall be fitted with a bow thruster to aid in maneuverability in restricted
waters.
4.21.4 Superstructure
The historical ship arrangement for vessels has typically been a fore- and
after-superstructure. An all-aft superstructure arrangement is adopted for this
bulk carrier. Use of an quail aft superstructure has shown that ship
maneuvering in restricted waters is quail deterimental to ship operations, and
has been considered in this evaluation. Benford (1995) recommends a
121
TABLE 4.7
STOWAGE FACTORS CUBIC METRE PER TONNE
IT E M PA C K IN G M /T IT E M P A C K IN G M /T
Apples Boxes 2.23 Lead, pig Neat Stowage 0.22
Autos Assembled 7.52 Lard Boxes 1.25
And Uncrated
Barbed wire Rolls, 1.53 Machinery Crated 1.39
Bauxite Bulk 1.07 Meat Cold Storage 2.65
Beans Bags 1.67 M olasses Bulk 0.75
Beer Bottled in 2.23 Newspaper Bales .
Cases 3.34
Butter Cases 1.67 Nitrate Bags 0.75
Canned Cases 1.34 Oil Drums 1.25
Goods
122
Carpets Bales 3.90 Oranges Boxes 2.17
Cem ent Bags 0.97 Oysters Barrels 1.67
Cement Bulk 0.72 Paint Cans 1.00
Cheese Crates 1.81 Palm oil Bulk 1.09
Citrus fruit Boxes 2.62 Paper Rolls 2.51
Coal Bulk 1.32 Potatoes Bags 1.67
Average Cocount Bulk 3.90 Poultry Boxes 2.65
Coffee Bags 1.62 Rail road Neat Stowage 0.42
Rails
Condensed
M ilk Cases o f Cans 1.23 Rice Bags 1.62
Copper Ore Bulk 0.47 Rope Coils 2.51
Copra Bags 2.09 to Rubber Bundles 3.90
2.37
Com Bulk 1.41 Rye Bulk 1.62
Cotton Bales, Average 1.45 Salt Bulk 1.03
Currants Crates 1.81 Silk Bales 3.06
Dried Fruit Boxes 1.25 Steel Bolts Keys 0.58
Dry Goods Boxes 2.79 Steel Sheets Crated 0.42
Fish Barrels, 1.39 Sugar Bags 1.31
123
Flour Iced Bags 1.34 T ar Barrels 1.50
Furniture Crated 4.35 Tea Cases 2.79
Glass Crated 3.62 Tile Boxes 1.39
Gypsum Bags 1.24 Tim ber Oak 1.09
Hardware Boxes 1.39 Tim ber Fir 1.81
Hides Bales, Compressed 2.23 Tung Oil Bulk 1.07
Iron Ore Bulk 0.30 to Turpentine Drum 1.59
0.53
Iron Ore Bulk 0.25 to W heat Bulk 1.31
0.53
sts Iron, Pig Neat Stowage 0.28 W heat Bags 1.45
Bales 1.84 W hiskey Cases ' 1.74
W oodchips Bulk 3.07
Source: Principles o f Naval Architecture.
124
superstructure height of 7.62 meters and 15 percent of the lenght between
perpediculars.
4.2.*1.5 Economic Considerations
The optimum vessel design depends not only on the ship characteristics
but it will also be affected by the economic considerations. Such considerations
include:
* The owners requiredrate-of-return-on-investment which is
considered to be 15 percent, was selected as a reasonable
investment criterion.
* The ships economic life of 20 years, eventhough some
shipowners now stipulate economic life of 25 years (Butman,
1994).
* Income tax rate
4.2.*1.6 Operating Days
Ocean-going vessels are assumed to be operational for 350 days a year,
as suggested by (Benford, 1980 and Robinson, 1965). The remaining 15 days
per annum are the off-hire days or downtime spent for repair work, break
down, holidays, etc.
125
4.2.1.7 Days in Port
The time in port per round trip for the bulk carrier has been taken as 2.5
days (Hunt, 1994). This is because the pumping capacity of a bulk carrier is
! ' { > ! 6 - 1 ? percent of the deadweight per hour, and thus 8 - 1 6 hours are
required for unloading. A similar time is needed for loading, and the remaining
time is used for docking, bunkering, and cargo-handling delays.
Available data for bulk carriers indicate that between 1.25 and 3.5 days
are spent in each port for unloading and loading. The time in port appears to
be more a function of the efficiency of the port equipment than the size of the
vessel being handled. It has been assumed that a total time of 5 days per round
trip is spent in port.
4.2.1.8 Endurance
From Table of Distance between Ports, US. Navy Department,
Hydrographic Office, 1943; Philips Distance Table for mariners, 1960; and
Distance Table, World Ports, 1973 by Nippon Shipping Exchange, Tokyo,
Japan (see Table 4.8), it can be seen that the approximate distance between US
East Coast and Nigerian Ports is 5,000 nautical miles. For the bulk carrier, a
round-trip distance of about 10,000 nautical miles has been assumed.
126
of the copyright owner. Further reproduction prohibited without permission.

v i ; 2 1 5 s = r ? = : i u S
JOUNCE:
DISTANCE TABLES
W IJ
***
S fc *4
NIPPON
PHIPPING
- WORLD PORTS.
EXCHANGE,
1973.
TOKYO,
<<M V5 (/I
IN NAUTICAL
JAPAN.
MILES
rrg?PP?P ?> I
I 8s2 r - ' r f f
127
4.2.8 Bulk Carrier Design Selection
By using the University of Michigan computer program and the ship
conceptual/preliminary design and analysis program MARECON (1995), the
investigations to evaluate - the economies of several different design concepts
were accomplished. During this conceptual design study, it is desirable to
explore the relationships among one or more engineering and economic
parameters and the economic measure of merit, that is, the Internal Rate of
Return (IRR). The engineering relationships include length-to-breadth ratio,
block coefficient, the limiting draught etc. at the ports of call.
The intent here is to assume that a variety of future economic and
environmental conditions exist. A decision is made to maximize the measure-
of-merit after the specific future conditions are known. This eliminates the cost
of uncertainty. For this evaluation, a 160-metre length between perpendiculars
as a port limitation for double-bottom bulk carrier is explored using three
alternative conceptual designs. These are evaluated under an assumption of a
discrete, exhaustive, and independent set of future events. The discrete design
alternatives are:
- Length-beam ratio (L/B) 6.2, 6.4, 6.25
The discrete future events are as follows:
- Revenue, Freight Rate (RFR), $/tonne-mile 0.006, 0.008, 0.010.
- Fuel cost, $/tonne 180, 200, 240.
128
- Vessel range, nautical miles 5000, 5000, 5000,& etc.
A ship is generated and evaluated for each of the length-beam ratios and every
combination of events that involve 54 payoff calculations contained in the Table
4.9 below on Input Data.
The computer programme VENTURE accepts data describing the
characteristics of the bulk carrier, cost information, operating data, financial
information, and shipbuilding data. This information is used to find the ship
characteristics and ship speed needed to provide the best internal rate of return
(IRR). To accomplish this, the programme calculates the ship characteristics,
weights, costs, etc., for a series of similar vessels at increasing operating
speeds. The programme can then be instructed to print out the detailed
characteristics, economies, and operating information for the best ship in the
particular bulk trade.
Furthermore, using the best ship (optimum bulk carrier design selection)
the various construction cost estimates for the foreign countries (U.S., U.K.,
Japan, S. Korea) and Nigeria are obtained by inputting their respective
shipbuilding compensations.
The results from above evaluation (see Table 4.10) show that the L/B =
6.2 ship, 160 m x 25.8 m x 0.80 Cb economic performance is better than L/B
129
nmaiB 4*9
;i n p u t DATA . ;
Length between perpendiculars, metres 160.0

Length-beam ratio 6.25
Beam-depth ratio 2.4
Midship section coefficient 0.995
Cargo density, kilogram per cubic metre, for palm oil 915.0
Steel weic'v adjustment, double bottom 1.03
Center of gravity above keel, decimal of depth 0.57
Correlation allowance 0.0004
Appendage factor 1.02
Propeller revolutions per minute 88.0
Service allowance factor 1.2
Range, nautical miles in loaded direction 5000.0
Specific fuel consumption 273.0
Number of propellers 1
Design speed, first case to calculate, knots 15.0
Number of speed cases to calculate 9
Speed increment for calculation 0.5
Ratio of cargo tons to displacement tons 0.72
Steel fabrication cost, $/metric tonne 35.0
Labor rate including applied overhead, $/hour 16.0
Shipbuilder profit on sales 0.05
Loan repayment period, years 15
Interest rate on borrowed funds 0.085
Owner equity, decimal 0.25
Ship depreciation period, years 10
Tax rate, decimal 0.315
Salvage value, decimal of first cost 0.085
Port time per round trip, days 5.0
Inflation rate, decimal 0.035
Operating days per year 350.0
Number of crew members 25
130
Freight rate, $/metric tonne-mile 0.006
Cost of heavy bunker fuel, $/tonne 180.0
Cost of diesel fuel, $/tonne 250.0
Shipyard fixed cost, $ 3500000.0
Construction steel cost adjustment 0.30
Steel cost adjustment 0.070
Machinery cost adjustment 2 0.020
Steel adjustment 0.120
Steel cost adjustment 1 0.030

steel cost adjustment 2 0.010
Productivity adjustment 1 0.140

Productivity adjustment 2 0.30
Labor adjustment 1 0.0750
Labor adjustment 2 0.001
Steel index 1.000
Outfit index 1.000
Machinery index 1.000
Labor cost adjustment 1 0.020
Labor cost adjustment 2 0.030

Economic life up to 20 years 20
131
= 6.25 or L/B = 6.4 under any of the future events. That is, the L/B = 6.2
design dominates the decision. Further investigation of the sensitivity of the
selection of L/B = 6.2 ship to key future event parameters reveals that there
is a continuous improvement in Internal Rate of Return over and above the
other ships, as shown in Table 4.10 Required Freight Rate For Selection of the
Bulk Carrier, and in Figure 4.3 - Sensitivity to revenue rate.
TABLE 4.10
THE REQUIRED RATES FOR SELECTION OF THE BULK CARRIER
Vessel Specifications Required Freight Rate, IRR,%
(S/tonne-mile)
L/B=6.2, 160m x 25.8m x 0.8Cb 0.006 7.28
CL/B-6.4, 160m x 25 m x 0.8Cb 0.006 5.00
L/B=6.25, 160m x 25.6m x 0.8Cb 0.006 6.31
L/B-6.2, 160m x 25.8 m x 0.8Cb 0.008 14.57
L/B=6.4, 160 m x 25 m x 0.8Cb 0.008 12.69
L/B-6.25, 160m x 25.6 m x 0.8Cb 0.008 14.02
L/B=6.2, 160m x 25.8 m x 0.8Cb 0.010 20.00
L/B-6.4, 160m x 25 m x 0.8Cb 0.010 18.26
L/B=6.25, 160 m x 25.6 m x 0.8Cb 0.010 19.71
132
Required Freight Rate Vessel Specification IRR, %
$ per Tonne - mile
0.006 L/B = 6.2 7.28

0.006 L/B = 6.25 6.31
0.006 L/B = 6.4 5.00
0.008 L/B = 6.2 14.37
0.008 L/B = 6.25 14.02
0.008 L/B = 6.4 12.69
0.010 L/B = 6.2 20.00
0.010 L/B = 6.25 19.71
0.010 L/B = 6.4 18.26
IS
0
om
FRE IG H T R A T E , $ PER T O N N E -M IL E
...B ... L / B = 6 .2 q. L /B = 6 .2 5 L /B = 6 .4
FIGURE 4 .5 SF2TSITIVITY TO FREIGHT RATE
133
Based on these preliminary engineering studies, it was decided that the
model bulk carrier should be approximately the size of the L/B = 6.2 ship,
160m x 25.8m x 0.80Cb, but would be diesel powered. By using a library of
vessel designs from Mitsubishi Heavy Industry (1994) and Bremer Vulkan
Werft GmbH (1995), the various proposals as shown in Table 4.11 were
generated. These were further refined in order to obtain the maximum bulk
carrying capacity possible and meet other requirements for the intended service.
Various alternatives were reviewed relative to vessel length, vessel depth,
use of high -strength steel versus mild steel, fuel carrying capacity, fuel in
double bottoms versus wing tanks, expected vessel trim, susceptibility and
exposure to noise and vibration, electric load required, main propulsion plant
to be used, etc. There appeared little doubt in recommending a slow-speed
diesel engine.
Various diesel propulsion plant alternatives were considered to ensure
that the best overall plant was selected. Ship type G in Table 4.11 was selected
as the basic design.
4.2.8.1 Vessel Description
The principal particulars of the model bulk carrier as finally determined
are given in Figure 4.6 - General Arrangement of the Handysize Bulk Carrier
and Table 4.12 - Principal Characteristics of the Handysize Bulk Carrier.
134

ZAEU 4 .1 1
PRINCIPAL PARTICULARS O F P R O P O S E D SHIP TYPES
SHIP TYPE/
ITEMS A B C D E F G
L B P (M ) 1 6 0 .0 0 1 6 0 .2 0 1 5 0 .5 0 1 6 0 .0 0 1 6 0 .0 0 160 1 6 0 .0 0
0 m ld (M ) 2 5 .8 0 2 5 .8 4 2 1 .6 0 2 5 .8 0 2 5 .6 0 2 5 .6 0 2 5 .8 0
D m ld (M ) 1 0 .7 5 1 0 .7 7 1 1 .7 0 1 0 .7 5 1 0 .6 7 1 1 .2 2 1 0 .7 5
T m i d .d e s i g n ( M ) 8 .0 0 8 .0 0 8 .5 0 8 .0 0 8 .0 0 8 .7 5 8 .0 0
m M m
D ie s e l m M w it
M a in e n g i n e R TA 62U R TA 76 S60M C U EC 60LS U EC 60LSU L70M C U E C 60L S

T y p e P S x rm 8880x110 11500X 105 8160X 105 6500X 100 9 9 0 0 X 1 0 5 1 0 4 0 0 -X 1 0 5 8 5 0 0 X 1 0 0
B u ild c a r r y in g
c a p a c ity @ 19478 19759 17747 19900 19102 20991 19900
T lm d d e s ig n ,
MT
B u il c a r r y in g
c a p a c ity @ 29249 29359 26513 2880 28783 29982 28880
T m ld D L W L ,
MT
S e rv ic e s p e e d
(K n o ts ) 1 2 .7 5 1 4 .5 0 1 4 .0 0 1 2 .7 5 1 2 .7 5 1 2 .5 0 1 2 .7 5
SOURCE : Calculated.
*r*i 135
4.2.8.2 General Description and Mission
The General Arrangement of the steel handysize multipurpose bulk
carrier is shown in Figure 4.6, from which it can be seen that it is a single
screw, slow-speed, diesel engine propelled vessel with four cargo holds. Apart
from carrying its normal cargo of palm oil, it is'also suitable for the carriage
of 20 foot and 40 foot container/highway trailers and automobiles. The ship has
a bulbous bow, raked stem, and a transom stern. It has super-structure and
deckhouse located aft. The deckhouse has five deck levels. There is no sheer
on any decks.
The hull is subdivided by eight transverse bulkheads into nine main water
tight compartments. The engine room is located after, between the after peak
and the forward engine room bulk heads.
Cargo handling equipment comprises of four deck cranes, each of 30t
capacity with the four cranes being arranged as two twin units located between
holds Nos. 1 and 2 and also between holds 3 and 4. Loading and unloading
operations are performed by means of these two twin cranes land via the stem
quarter ramp for the ro-ro cargo. With this arrangement these four holds may
be served by two cranes working together to provide double the lifting capacity
of a single unit.
136

1
S 'l 7
137
The wheel house is located in the eight tier of the deckhouse above the
main deck to provide good forward vision above the container tiers on the hatch
covers.
The mission of the ship is to transport palm oil, containers and ro-ro
cargo between the USA and West Africa especially Nigeria. The ship will be
registered in Nigeria and operated by crew of Nigerian nationals.
4.2.8.3 Main Characteristics of the Vessel
The main characteristics of the handysize bulk carrier are listed as
follows:
Table 4.12 Principal characteristics of the Handysize Bulk carrier.
1. Principal dimensions:
Length overall 172.85m
Length, bp 160.00m
Breadth, molded 25.80m
Depth, molded to main deck 10.75m
Draught, molded (designed) 8.00m
Draught, DLWL (Scantling) 10.43m
Deadweight designed draught 20095MT
Deadweight DLWL 29780MT
138
2. Cargo capacity:
At designed draught 19900MT
At DLWL 28800MT
3. Speed and Endurance:
Service speed at design draught and normal output of main engine with
20% and margin: 12.5 knots. Total maximum speed at design draught and
maximum output of main engine; 15 knots.
Endurance about 10,000 nautical miles.
4. Complement:
Officers 8 persons
Crews 14 persons
Additional 3 persons
Total 25 persons
5. Machinery
Main engine, MITSUBISHI - SULZER single acting and
reciprocating low-speed, two-stoke, crosshead turbo charged,
reversible type marine propeller.
Maximum rating (MW) 8.5ps/100 rpm
Normal Rating 6.4ps/88 rpm
139
Propeller 5 blades, solid, Ni A1 Brx 1 set 6.07m
dia.x6.01m pitch.
Electric Generators:
Main Diesel 1200KW, AC 450V, 50Hz x 2 sets generators Main

turborgenerator 700KW, AC 450V, 50Hz x 1 set generator Aux.
Diesel 600KW, AC 450V, 50Hz x 1 set
Emergency Diesel 240KW, AC 450V, 50Hz x 1 set.
Exhaust gas economizer MITSUBISHI dual steam pressure type
1 set.
Aux. boiler Saturated type.
The bulk carrier features self-unloading cargo handling systems,
independent of shore-based cargo handling systems. This would assist in
reducing ships time at berth, reduce ship turnaround time thereby reducing
maritime transport costs.
The vessel derives its main power from a set of Mitsubishi - Sulzer
(1995) 8 - cylinder in-line UEC60LS arranged and mounted on resilient rubber
mounts. Total power generated is 8,500KW at 100 revolutions per minute to
give a service speed of 12.5 knots with the vessel fully laden.
140
4.3. SHIPBUILDING CONSTRUCTION COST ESTIMATES
The model handysize as finally determined from the optimization study
in section 4.2 is now used for the study to determine the cost estimate and price
competitiveness of the Nigerian shipbuilding (see 3.3.6). By using the same
operaion data used in the basic.. design, but using the appropriate shipbuilding
wage rate prevalent in each foreign shipbuilding nation (U.S., U.K., Japan,
South Korea, and Nigeria) the relative costs of construction of comparable
vessel were obtained,. . . Generally, the contract prices
for new building are determined based on the ship prices prevailing in the
shipbuilding market. The presentation of an initial price indication is made
based on the shipbuilding cost arrived at by taking into account various factors,
including estimated escalation in wages and commodity prices - namely, cost
wise price, shipbuilding can add up to ten percent (10%) as a profit margin to
the construction cost to obtain the ship price.
Shipbuiding Construction Cost Estimate and Ship Prices
Table 4.13 below summarize the ship design cost estimate, derived from section
3.3.6 and APPENDIX , life cycle cost for the bulk carrier. Subsequently Table
4.14 presents the analysis of the results for this study, with a simple gross
margin of 10 percent
TABLE 4.13
Shipbuilding Cost Estimate and Ship Prices
Item Amount
Hull steel, tonnes 4/189,521

Outfit, tonnes 1,152,008
Machinery, tonnes 505,590
Design margin, tonnes 153,768
Light ship, tonnes 6^00,797
Material cost steel, $ 3,205,126.00
Material cost outfit, $ 3,365,178.00
Material cost machinery, $ 4,664,095.00
Labour, man-hrs, steel 291,438.20
Labour, man-hrs, outfit 34,141.68
Labour, man-hrs, machinery 168,750.00
Labour, steel, $ 5,271,648.00
Labour, outfit, $ 617,568.10
Labour, material, $ 11,234,400.00
Total labour, $ 8,941,640.00
Fixed cost, $ 3,500,000.00
Total cost estimate, $ 23,676,040.00
Profit 1,246,107.00
Estimated sales price, $ 24,922,150.00
142
\
<
TABLE 4.14
Building cost of Nigerian Shipbuilding Industry (Com parison with US., U.K.,
Japan and South Korea in 1995 ).
Shipyard- A B ' C D E
Item U.S. U.K. JAPAN S. KOREA NIGERIA
Material
Cost, $M 9.00(41.6% ) 11.00(40%) 11.00(37%) 11.00(45.5%) 11.00(65.5%)
Labour
Cost, $M 9.00(4.1%) 10.00(36.4%) 12.00(40.4%) 7.00(28.9% ) 0.38(1.8% )
Fixed
Cost, $M 4.00(15.2% ) 4.00(14.5% ) 4.00(13.5% ) 4.00(16.5% ) 4.00(23.8% )
Total Cost
Estim ate $M 24.00(90.9% ) 25.00(90.97% ) 27.00(90.9%) 22.00(90.9% ) 13.3(91.1%)
Profit, $M 2.40(9.1% ) 2.50(911%) 2.70((9.1% ) 2.20(9.1%) 1.50(8.9%)
Price, $M 2640 (100%) 27.50(100% ) 29.70(1000%) 24.20(100% ) 16.80(100%)
IRR, % 13.27 12.59 11.64 14.34 20.55
T h e sh ip b u ild in g c o st, in th e case o f N ig e ria , is com posed o f m aterial c o sts (6 5 .5 % )
la b o u r o r m an p o w e r c o sts (1 .8 % ) and such e x p e n se s as d e sig n g and in d ire ct costs (fixed
c o sts) o f 2 3 .8 % . T h e m aterial c o sts co n sist o f steel m aterials a n d m arin e engines. T h ese
co u ld b e im p o rte d fro m Ja p an , S outh K o re a and W e ste rn E urope.
C o m p a re d to th e o th e r sh ip b u ild in g n ations, th e sh ip b u ild in g c o st in N ig e ria is $ 1 5 . 3 1M
a b o u t 4 3 .8 % lo w e r th an S outh K o rea co n stru c tio n c o st o f $22M , 7 6.5% lo w e r than J a p a n s
143
construction cost of $27M, 63.4% lower than U.K.s construction cost of S125M. and
56,98% lower than the U.S.s construction cost of $24M. - all leading to a competitive
advantage to Nigeria.
However, since Nigerias dependence on imports for materials is high, about
65.58%, the competive advantage could be partially offset or even more than offset by
a rise in the building cost in Nigeria due to the appreciation of the dollar, depending upon
the degree of its reliance on imports from the developed countries for materials. But this
advantage could be maintained by productivity improvement in die Nigerian shipbuilding
industry and production of cheaper doemstic steel materials. Nigerias industry and
production of cheaper domestic steel materials. Nigerias ship prices were arrival at by
adding such factors as interest and non-operating expenses to the shipbuilding cost.
On the other hand, the labour cost included in the shipbuilding cost was derived
by multiplying total man-hours by unit hourly wages. Since wages in Nigeria have in
recent years tended to be relatively stable, well below the inflationary trend, the share of
labour cost to the total building cost should remain constant.
A comparision of ship price sof the handysize, among the shipbuilding nations
reveals that Nigeria is in an advantageous position with its price of $I6.8M being about
44% lower than those of South Korea, $24.2M; 76.8%; and 57.1% lower than those of
Japan, $29.7M; 63.7M; lower than those of U.K., $27.5M and 57.1% lower than those
of U.S. $26.4M; when the exchange rate prevailing in December, 1995 was applied. It
is noteworthy tha the primary factor in the shipbuilding competitive environment is price,
which could be driven by shipbuilders costs. Many shipbuilders could bid at cost, some
have been known to liave bid below total cost in times of overbuilding, depressing new
construction prices.
144
The following is ranking according to the relative cheapness of the shipyards
based on the aggregate cost.
Table 4.15 Ranking According to Cost of Construction.
Position Country Aggregate Cost Cost Index

$M %
1 Nigeria 15.00 100

2 S. Korea 22.00 147
3 U.S. 24.00 160
4 U.K. 25.00 167
5 Japan 27.00 180
Source: (Calculated
In terms of relative cost of construction, Nigeria takes the first position in its
potential capability to build cheap bulk carriers, followed in the second position by S.
Korea, U.S. taking the third position, U.K. in the fourth position and Japan taking die
fifth position.
145
4.3.1 Economic Performance
An investigation was undertaken to deterine the economic performance
during operations of each vessel built in thevarious nations. This is to reflect
the performance attributes with respect to its market price and operational
characteristics, each vessel was assumed to operate under similar conditions.
Such attributes highlight the positive benefits on the marketability of a design.
Tables^. 16 and 4.17 below refer, to the summary of Economic performance and
operating Data. Nigerian-built ships internal rate of returen (IRR) of 0.2055 is
43.3% higher than South Koreas IRR of 0.1434; 76.5% higher than Japans
IRR of 0.1164; 63.2% higher than U .K .s IRR of 0.1259; and 54.9% higher
than U.S. IRR of 0.1327. These differences can have a very significant effect
on the economic performance of a shipyard. This analysis states the obvious -
all things being equal, a less expensive ship to build is a more competitive one
commercially (Landsburg, et.al, 1990.)
4.3.2 Accuracy of Construction Cost Estimate
When comparing the estimated costs with the actual forecasted costs of
the bulk carrier, there is need to establish the accuracy ratio of past estimate,
AR. The check of the calculated values is made by calculating the ratio between
the deviated value and the forecasted value:
146
The following is the analysis of the economic summary of the bulk carrier built
in the various countries:

TABLE 4 4 6
Economic Summary
ITEM C O U N T R Y I
A B C D E I
US UK JAPAN S. KOREA NIGERIA I
Economic Life
years 20 20 20 20
20 1
Rate of Return % 13.27 12.59 11.64 14.37 20.55 |
Owner Capital
Investment $M 6.23 6.52 6.97 5.79 3.95
Amount of Bank
Loan, $M 18.69 19.57 20.90 17.37 11.85
Total Capital
Requnt, $M 24.92 26.10 27.86 23.16 15.80
Working Capital
Reqd, $M 0.50 0.50 0.50 0.50 0.50
Start-up Expenses}
$M 1.19 1.21 1.24 1.17 1.06
Gross Cash Reqd.,
$M 26.61 27.81 26.90 24.82 17.36
Borrowed Funds
Interest Rate 0.085 0.085 0.085 0.085 0.085
Anitqai Principal
and interest, $M 2.25 2.36 2.52 2.09 1.43
Loan, Amortization
Period, years 15 15 15 15 15
Scrap value 0.085 0.085 0.085 0.085 0.085
Federal and State
Corporate Tax rate 0.315 0.315 0.315 0.315 0.315
Inflation rate;
Depreciation Basis
Sum-of-years - 0.035 0.035 0.035 0.035 0.035
digits method
147
TABLE 4 . 1 7
SUMMARY OF ECONOM IC PERFORMANCE AND OPERATING DATA
Ship Y ard A B C D E |
U.S. U.K JAPAN S.KOREA NIGERIA I
Item
Officers & Crew 25 25 25 25 25
Pori Time Per
Round Trip, Days 5 5 5 5 5
Operating Days
Per Year 350 350 350 350 350
Round Trips Per
Year 9.289 9.289 9.289 9.289 9.289
No. of Days at
Sea Per Round Trip 32.68 32.68 32.68 32.68 32.68
Economic Life,
Years 20 20 20 20 20
Depreciation Period,
Years 10 10 10 10 10
Total Cargo moved
Tonnes/Year 271693.4 271693.4 271693.4 271693.4 271693.4
Discounted Freight
Cost, $/Tonne 12.018 12.018 12.642 10.969 8.273
Discounted Freight
Cost, $/Tonne-mile 0.002 0.002 0.003 0.002 0.002
Investment Cost,
$M 24.0 25.0 27.0 22.0 15.0
148
AR = Vf - Vf
V#
where = $21.5m, from Table 2.3 on forecast Bulk Carrier New
building Prices in South Korea; No. 1
shipbuilding Nation.
Vc = $24.2m, from Table 4.9 on Building cost of Nigeria
shipbuilding Industry (comparison with U .S.,
U.K, Japan and S. Korea).
AR = 12.6 percent
This accuracy ratio of 12.6% falls within the costruction cost models Budget
estimates accuracy of between + 30% to -15%. These construction cost
estimates can be reasonably accepted as adequate for this study.
4.3.3 Comparative Costs with Shipyards Worldwide
It is now pertinent to make comparative ship construction costs among
the ship building nations in this study namely U.S., Japan, U.K.,S.Korea and
Nigeria. This to appropriately gauge the measure of competitiveness of ship
yards located in these foreign countries.
The measure of competitiveness utilized is cost per unit of output, the
unit of output used being the compensated Gross Ton (CGT), COST/CGT. In
other words, comparing the income per unit work (represented by the
149
C o m p e n sa te d G ro ss T o n ) fo r th e h a n d y siz e bu lk c a rrie r w as m ad e fo r each fo reig n
ship b u ild e r (see se ctio n 3.3.7).
In fo rm atio n o n c o sts is o ften d iffic u lt to obtain as it is c o m m e rc ia lly se n sitiv e
and req u ires m o re e ffo rt by th e sh ip y ard to produce. S om e sh ip y a rd s w ill p ro v id e the
in fo rm a tio n b u t i f th ey d o n o t th en rec o u rse to o th e r so u rc e s is m ade. A n u m b e r o f
in d u stry a sso c ia tio n s o f sh ip b u ild in g c o u n tries k eep tra c k o f th e rele v an t w ag e rates
o f c o m p e tito r nations, levels o f su b sid ie s and b u ild in g fo r e x p o rt p u rp o ses.
T he assu m p tio n h e re is th at th e p ric e o f a ship is rela te d to th e w o rk co n ten t.
T h o u g h ship p ric e s m o v e on a c o m m o d ity basis, risin g and fallin g w ith su p p ly and
d em and ac co rd in g to F airp lay sh ip s on o rd er/A & P A p p le d o re In tern atio n al on
th e p ric e index. T a b le 4 .1 8 p re se n ts th e results o f th is analysis.
TABLE 4.18
Comparing the Income per unit of work
Item A B C D E
U .S. U .K . JA P A N S .K O R E A N IG E F
E stim ate d c u rre n t
P rice, $ M 26.4 27.5 29.7 2 4.2 16.5
E stim ate d C G T 14,000 14,000 14,000 14,000 14,000
In co m e p e r C G T ,$ 1,886 1,964 2,121 1,729 1,179
150
r Further reproduction prohibited without permission.

rvf thp coovriqht owner. Further repiuuu
Reproduced with permission of the copy y
The calculated values for the shipyard(s) or shipbuilding
country/region(s) can be represented in Figure 4 .7 , to indicate their relative
performances in terms o f comparative costs and competitiveness.
Shipyards A, B,and C are typical of the advanced production technology
available in developed countries of the U.S., U.K and Japan, with a reasonable
level of productivity but a fairly high cost, giving a level of competitiveness of
between $1,886 per CGT and $2,121 per CGT.
Shipyard D typifies average technology, level of the newly emerging
nations exemplified by South Korea, with its productivity-improvement attitude,
giving a level of competitiveness of $1,729 per CGT. Shipyard E is typical of
a developing country exemplified by Nigeria with low productivity, but a very
low operating cost, giving a level of competitiveness of $1,179 per CGT.
This analysis has brought to the fore the shipbuilding industrys price
competitiveness in the international market, tipping the balance of comparative
cost advantage in favour of Nigeria. This, coupled with the depreciated value
of the Naira, dramatically has strengthened Nigerias potential international
price competitiveness in shipbuilding.
INCOME PER CGT %
(Thousands)
o o o o o o o o o
o ro u V bi cn "j co >i> ro ui-r- u cr.
I I I I I I I 1 1... 1.
X V V X
x X X \ X \ \ . X X \ V \ X X X
\ \ \ x X x \ X X XX X \ X \ x
c: \ X \ X - . X X X X X X X X X X X \
In _| X X X \ X X X X X X X X
V "- X X X X X \ \ \ \ v. v
> \ Xx \ X X \ x x X X v'
X \ X X X X x. X \ X x.
X. X X X . \ X X. \ \ \ . x.
X\ x X X X x. X X X X
XT
x. X \
X X X X XX \
xXx \VSX >X XX X\ XXXX X X
x \ x \ x X \ X \ X X X X X X \ \
Fi<3- 4.1*1 Shipyards' relative P;'rfon\a/\Cs
X \ \ \ x x X XX n x x x X V x
v X X. X X X x X x \ X X X X X X x
Xv X X X X X X X X X X X X X X \
x \ \ \ \ X X X x X x. x. X . x, S . x
X X X X Xx x x x V x X. V X
X x x \ X X x X x x X
> X x. X \ \ X \ X X X. \
13 -I
>
\
xX
in
X
o -]
TO
m
>
x x x \ x x x \ \ x x \ \
x X \ X Xx \ X . \ \ v \ \ \ \
\ x X. x_ \ \ \ X \ X X \
X X X X x X. X X X \ X X X. X,
C> X\
m -) x x x x x X \
;o X X X .X V.X Xs- X XX X X X \ \ X x
X X \ X X X X X X X X X x
- . X X X . X . w\ N. N X XX ' XX x. Xx. X
s
X '' X ' s X. W X y
152-
4.3 Inflation And Labour Cost Estimate
In order to resolve the long-term need o f 150 new v essels in the merchant fleet, it is
planned that N igerias shipbuilding industry can m eet this demand within 20 years by
producing 7 ships each year. T w o shipyards w ith an annual capacity to produce 4 ships
and 3 ships respectively w ere envisaged. This calculation is done to predict labour costs
for identical units o f manufacture over a five year period.
On this basis, the estim ated average rate for shipbuilding labour is $0.75 per
labour hour. That is, using regression analysis (see Section 3 .3.5), it w as possible to
determ ine trends in growth o f labour com pensation. B y inspecting Table 2.9, on
International Shipbuilding Labour C om pensation, it sh ow s the predicted yearly
com pensation rates in dollars as deducted in Table 4.19. The anticipated inflation rate
during the next five years for shipbuilding labour is 5 percent year. T he shipbuilders
cost o f m oney is 8 percent. T he labour content o f the first vessel is 4 8 2 ,4 3 9 m an-hours
and the learning rate o f 96 percent w as anticipated.
TABLE 4.19
Year U .S. U.K . Japan S.K orea Nigeria
1990 15.11 12.55 16.18 10.00 0.50
1991 15.32 13.02 17.43 10.80 0.50
1992 15.53 13.80 18.69 11.60 0.60
1993 15.74 14.32 19.94 12.20 0.60
1994 15.96 14.68 2 1 .2 0 12.50 0.68
1995 16.19 16.76 22.45 13.50 0.68
% increase
1990-1995 7.15 2 5 .5 8 38.75 35 36.0
153
Coefficient 0.9998 0.99 0.9999 0.998 0.95
1996 16.42 16.22 23.71 14.23 0.75
1997 16.14 16.84 24.96 14.93 0.75
Calculating the equivalent internal rate with inflation;
= 'a + ir+ inr
i = 0.08+0.5+(0.08X0.5) = 0.134
Calculating annual labour based on 96 percent learning;
L = KV^
= 482,639*003W
Vessels
Yard Yard
No.l No.2 Year Direct labour
1 1 1 - 965,278
2 2 1 0.960 926,666
3 3 1 0.937 904,166
4 - 1 0.922 444,993
5 4 2 0.910 884,194
6 5 2 0.900 873,576
7 6 2 0.892 864,889
8 - 2 0.885 427,136
9 7 3 0.879 854,754
10 8 3 0.873 848,480
154
11 9 3 0.868 843,171
12 - 3 0.864 417,000
13 10 4 0.860 836,414
14 11 4 0.856 832,070
15 12 4 0.853 828,691
16 - 4 0.849 409,761
17 13 5 0.846 823,383
18 14 5 0.843 820,007
19 15 5 0.841 817,590
20 - 5 0.838 404,451
Present worth of labour $0.75 (Labour-hours) (P/F, i,n)
Year (P/F, i,n) Labour-hrs P W ,$
1 0.8818 3,341,403 2,209,837
2 0.7776 3,049,795 1,778,640
3, 0.6857 2,963,405 1,524,005
4 0.6047 2,906,936 1,318,368
5 0.5333 2,865,431 1 146.100
Present worth of labour 7,976,950
Therefore, the present worth o f economic gain in zero year dollars is $7,976,950, or the annual
equivalent gain is $7,976,950 (A/P,.134,5) x (0.2871) = $2,290,257 for the use of the learning experienc<
for shipbuilding when inflation is 5 percent and the cost of money is 8 percent during the five-year
building cycle for 35 vessels.
155
4 .5 . Time of Delivery of the Vessel
The co n ce p t/p re lim in a ry d esig n phase perform ed in
sectio n s (4 .1 to 4 .4 ) in v o lv ed th e tr a n sla tio n of the ow ners'
req u irem en ts/ or m issio n req u irem en ts in to th e targeted m arket
sector of the h and ysize/h an d ym ax (b u lk ca rrier) . T h is v essel can be
produced and operated in a m anner th at w ou ld sa tisfy th e stated
m issio n . It resu lted from co n d u ctin g a sy stem a tic p a ra m etric
a n a ly sis th at can be used to d eriv e optim um p ro p o rtio n s. M oveover,
th e in itia l conceptual d esig n can be re v ise d ex ten siv e ly to fu fill
th e stated m issio n more eco n o m ic a lly , more sa fe ly , or w ith greater
efficien cy .
The new h an d ysize/h an d ym ax co n stru ctio n program m e
sh o u ld be regarded as part of th e N ig eria n m erchant fle e t
rep la cem en t program . It is exp ected th at th is program is a w ise
in v estm en t. F reig h t ea rn in g s are m ajor reason for th is p o stiv e
o u tlo o k . Each new sh ip is pow ered by a M Itsu b ish -S u lzer slo w -sp eed
d ie sel en g in e to operate at a cru isin g speed of 1 2 .7 5 knots. In
lin e w ith the govern m en t's com m itm ent to a stron g N ig er ia n -fla g
m erchant fle e t a ll th ese new sh ip s sh a ll fly the N ig er ia n fla g and
are manned by N ig eria n crew s.
4 .5 .1 . Basic Trade Requirement:
The forem ost o p era tin g co n sid era tio n s co v erin g th is
d esig n are econom y of o p era tio n and th e a b ility to ser v ic e a w id e
range of p orts. The N ig eria n m erchant fle e t ser v ic es a w o rld w id e
netw ork of over 80 p orts and c itie s in over 40 co u n tries.
In v estig a tio n on the use of d ie se l-p o w e r e d v e sse ls was
conducted to in su re th at th e best o v er a ll p la n t was selected . Many
156
stu d ie s w ere made as regards the exp ected fu el com sum p tion and
o v er a ll o p era tin g costs. B u ild in g a m axim um of th irty fiv e d ie se l-
powered v esse ls over a fiv e year p erio d (stra teg ic p la n n in g ) w ith a
sh ip b u ild in g ca p a city for seven sh ip s a n n u a lly w ou ld conform to
rea lm of eco n o m ic and b a sic sh ip y a rd ca p a city w ith th ese certa in
b a sic c r ite r ia :
1. The sh ip m ust be a b le to tra n sit the Suez and
Panama C a n a l s .
2. A maxim um d r a u g h t of 1 0 .7 5 m
3. A ser v ic e speed of 10 - 15 knots
4. A cru isin g range 1 0 ,0 0 0 m iles
5. C a p a b ility for ca rry in g co n ta in ers
6. D esign ed for unm anned en gin e room b rid g e co n tr o l.
4 .5 .2 . Preliminary Designs:
B ased on the afo rm en tio n ed factors and co n sid erin g th e
d efu n ct N N SL 's ea r lie r ex p erien ce w ith HYUNDI A H eavy In d u stries of
South K orea for d esig n in g elev en general cargo v esse ls for d ie sel
p ro p u lsio n , it w ou ld be a p p ro p ria te to d ev elo p p la n s and
sp ecifica tio n s for a d ie se l pow ered sh ip th at w ou ld m eet its
re v ise d req u irem en t.
D ep en d in g on th e sam e p relim in a ry en g in eerin g stu d ie s,
it was d ecid ed th at the C h a llen g er h an ysize/h an d m ax (2 0 ,0 0 0 to
45 ,0 0 0 dw t) w ou ld rep la ce the D efender, the 16,0 0 0 dwt a g ein g and
o b so lete sh ip . T h is study used lib ra ry of vessel d esig n s and cam e
up w ith th e v a rio u s p ro p o sa ls as shown in T ab le 4 .fi. T h is was
refin ed in order to get th e maximum cargo ca rry in g ca p a city
p o ssib le and m eet oth er req u irem en ts for the in ten d ed ser v ic e as
*57
per F ig u re 4 .6 - G eneral A rrangem ent of th e H an d ysize/H an d ym ax and
T ab le 4.12-; - M ain ch a ra c ter istic s of the vessel re sp e ctiv ely .
C o n sid erin g the d iffer en ces in co m p a ra tiv e costs of
co n stru ctin g th is vessel among some sh ip b u ild in g n a tio n s of US, UK,
Japan, S .K o rea and N ig eria , it was d ecid ed to b u ild th is sh ip in
N ig er ia w ith its lea st ca p ita l cost of $15M.
The fo reg o in g can be su m m arized under in itia l d esign p la n
co m p r isin g :
1. G eneral arrangem ent p la n w ith m ajor system s
d ia g ra m s (e .g , power, p o ta b le w ater, etc)
2. S p ecifica tio n
3. C ost estim a tio n
4. P rin cip a l p a rticu la rs of the vessel
5. In itia l w eig h t e stim a te.
4.5.3. Bidding/Contracting:
Subsequent to th e co m p letio n of the b a sic d esig n as
enum erated above, th e sh ip owner w ou ld u su a lly conduct a survey of
a ll p o ten tia l b id d ers' fa c ilitie s , m anagem ent personnel and th e
sh ip y a rd 's past perform ance to d eterm in e a l i s t of b id d ers
co n sid ered q u a lified to h a n d le th e co n stru ctio n work. Some
governem ent in v ita tio n s for b id (IFB) co n ta in a statem en t to the
effect th at, by resp o n d in g to the IFB, th e yard w arran ts th at they
have fa c ilitie s under th eir con trol to carry out and com p lete th e
work in a ll d eta ils.
There are v a rio u s m ethods of in v itin g p ro p o sa ls for
sh ip y a rd to quote on th e owners req u irem en ts. The b id s may not be
read in fron t of th e v a rio u s b id d ers and th e owner selects offer,
t5 8
w h ich , in h is o p in io n , is m ost advantageous to h im . T h is is not
n ece ssa rily the lo w est p riced , though p rice u su a lly has m ore to do
w ith th e selectio n of th e con tractor than any o th e r factor.
P erform ance is p ro b a b ly th e second m ost im p o rta n t factor in an
award.
R e g a rd le ss of th e m ethod used to d eterm in e th e
su ccessful b id d er, a ll offers are th e resu lt of:
.An IFB
A set of sp ecifica tio n s settin g forth in
d eta il the work to be done, and
A set of con tract d ra w in g s w h ich d ep ic t th e
co n fig u ra tio n of th e d e s ir e d sh ip and from
w h ich the sh ip y a rd cannot d ev ia te w ith o u t
a p p ro v a l.
The sp ecifica tio n s and p la n s d ep ic tin g th e work to be
done are g en er a lly prepared by a naval a rch itectu ra l firm selected .
Even the U .S . Navy freu en tly con tracts for tech n ica l a ssista n ce,
though its Navy has su b sta n tia l num bers of en g in eerin g and con tract
personnel on board (B yin gton , 1984). Some sh ip y a rd s a cco m p lish th is
m ethod of sp ecifica tio n and p la n p rep a ra tio n work i n - h o u s e w ith
th eir own d esig n p erso n n el.
One of th is research m ajor p ro p o sa ls w ith
im p lem en ta tio n of th is p roject is a v o id in g ex cessiv e start-u p costs
if th e sh ip s cannot be phased in a c o st-e ffe c tiv e m anner. For th is
reason, the d eliv ery sch ed u le req u ires th at a ll th e seven v e sse ls
be d eliv ered d u rin g each year for the next fiv e years b eg in n in g
1999. That is th e sh ip y a rd A and sh ip y a rd B w ill o b ta in th e order
T59
to b u ild fou r sh ip s and th ree sh ip s each year resp ectiv ely .
S h ip yard A, the lea d yard is lo ca ted in Lagos has th ree b u ild in g
docks, and sh ip y a rd B th e fo llo w yard to be lo ca ted in W arri near
A lad ja S teel m ill has tw o b u ild in g docks. C on tracts ca ll for
co m p letio n of a ll work d ep icted by the p la n s and sp ecifica tio n s
w ith in th e stip u la ted p erio d . F igu re 4 ,g is an illu str a tio n of th e
M odel S h ip y a rd (s).
The fo llo w in g o b lig a tio n s are in clu d ed in th e
con tract: con tractu al d ates and tim e c o n str a in ts, paym ent sch ed u le
is listed b elow . The paym ent term s are re la ted to id en tifa b le
stages in th e b u ild program . They are shown b elow :
% V alu e US$
C ontract sig n in g 5 8 4 0 ,0 0 0
Cut fir s t ste el 5 8 4 0 ,0 0 0
Lay K e e l ( f i r s t b lo ck ) 15 2 ,5 2 0 ,0 0 0
Launch 15 2 ,5 2 0 ,0 0 0
D eliv ery 60 iO ,0 8 0 ,0 0 0 '
T otal p rice 100 16,-800*,000
T h is again r e in fo r ces the need to m eet sp ecified target d ates, in
p a rticu la r tim ely d eliv ery .
r " - r ** . %
T60
PLATE AND SHAPE
STORAGE RECEIVING
STEEL AREA
PROCESSING SHC
PLATE AND SHAPE STRAIGHTENING
BLASTING AND PAINTING
ROLLER MOVEMENT
AUTOMATED
CUTTING AND FORMING SHOP

NUMERICALLY CONTROLLED
MULTHEAD CUTTING
AUTOMATIC WELDING
OF SMALL ASSEMBLIES
AND SECTIONS
ROLLER MEVEMENT
ASSEMBLY/BLOCK SHOP
COMPLETION OF BLOCK SECTIONS
TO CRANE CAPACITY
PRODUCTION LINE
WELDING AND INITIAL FITTING OUT
GANTL
(300 T(: GANTRY
(500 TONS)
BUILDING S BUILDING BUILDING
DOCK #1 DOCK #2 DOCK #3
OUTFITING SHOP
UUIM IBJM GANTRY- OUTFITING PIER

(100 TONS)
3KSSSSSKK
Figure4. The Model Shipyard
161
X-5-IKey E v e n t s , Production Planning and Scheduling
F o llo w in g e x ten siv e con tract n eg o tia tio n s, con tracts
sh a ll be sig n ed m onths before th ese key events: keel la y in g ,
la u n ch in g and d eliv ery w ith respect to th e b u ild strategy d evelop ed
for co n stru ctin g th e sh ip . The p rin cip a l events for a ll th e seven
sh ip s in v o lv ed in th e stra teg ic p la n n in g w ith respect to each year
are giv en in T ab le 4<&D.
T ab le 4.32& C o n stru ctio n sech ed u le for seven
H an d ysize/H an d ym ax (b u lk C a rriers) .
VESSEL HULL YARD DOCK KEEL S E A DE LI VE R Y
1. 1101 A #1 1 0 /6 /9 8 2 8 /4 /9 9 1 6 /5 /9 9
2. 123 B #1 1 5 /7 /9 8 6 /5 /9 9 2 0 /6 /9 9
3. 1102 A #2 1 5 /8 /9 8 2 0 /5 /9 9 1 5 /6 /9 9
4 . 124 B #2 1 0 /9 /9 8 1 7 /6 /9 9 1 8 /7 /9 9
5. 1103 A #3 1 7 /1 0 /9 8 2 5 /8 /9 9 2 0 /9 /9 9
6. 125 B #1 1 4 /0 1 /9 8 2 0 /1 1 /9 9 1 0 /1 2 /9 9
7 . 1104 A #1 0 3 /1 2 /9 8 1 0 /9 /9 9 1 1 /1 0 /9 9
The annual se r ie s p ro d u ctio n run o f seven sh ip s of
th is c la ssad vocated show s great sa v in g sin w ork load sta b ility ,
p rod u ction g a in s, and th e learn er curve factor b ecom in g very
im p ortan t. A -90 p ercen t slo p e is a tta in a b le w ith a proper d eliv ery
sch ed u le and a w ell-m a n a g ed p rod u ction force so that crew s can be
tran sferred from h u ll and assign ed the sam e task s on each sh ip .
The p ercen tage of la b o u r per sh ip are shown by the fo llo w in g :
162
Number 1/2 = 100%
Number 3/4 = 90%
Number 5/6 = 85%
Number 7 = 81%
Figure 4.9 illustrated with a Gantt Chart stows the Key event for all the seven
ships for the strategic Planning. From the figure it can be seen that key events for ship
No. 1 of the bulk carrier for Which this Building strategy has been developed are:
- Sign contract (C) : 18 oct. 1997

- Cut first steel (S) :03 March 1998
- Erect first block on (K) :10 June 1998
- Launch (L) :01 Dec. 1998
- Deliver (D) : 16 May 1999
The construction period and building dock were decided according to die
working load table, which illustrates the work load level of all vessels within die yard.
The work load table was compiled from data of past actual (manhour) results of similar
Vessel types, considering hull construction, out-fitting and painting (direct trade only).
163
r-
so ^ >
so
00
00
Figire 4-9
C/i
oM
<S
vO ^v 2
Building Dock Schedule Chart
o
vO vO vO
vO vO 00
N)
00
vO >0 >
vO vO 00
00
NJ
r* od -o
vO vO
00 oo >00
0
K
LA
t64
T hese d ates d eterm in e when brought on m a teria ls and
eq u ip m en t have to be a v a ila b le in the yard. The d eliv ery d ates from
o rd erin g of the m a teria ls and eq u ip m en t d eterm in e th e d ate when th e
eq u ip m en t sh o u ld be ordered and th is, in tu rn , sp ecifes when the
tech n ica l in fo rm a tio n sh o u ld be a v a ila b le to en a b le orders to be
p la c ed .
(a) U sin g th e key events oth er events can be p la n n ed .
T hese events are:
* Key event program
* R esource u tiliz a tio n
* M a teria l and eq u ip m en t d eliv ery sch ed u le
* D raw ing S ch ed u le
* S ch ed u le of tests and tr ia ls
* Stage paym ent sch ed u le and p rojected cash flow .
The key event program co u ld be a sso cia ted w ith th e
product work breakdown structure (PWBS) to produce p la n n in g u n its
and m aster sch ed u le s for h u ll, b lo c k s, zones, eq u ip m en t u n its and
system s. F igu re 4.tC> lis ts th e product work breakdown for th is
structure of th e sh ip .
The item s liste d affect the o p era tio n s of p ro d u ctio n
m ach in es and m ust be ad eq u ately p la n n ed and co n tro lled . The more
autom ated th e in sta lla tio n , th e more necessary e ffic ie n t p la n n in g
and con trol o f m a teria l m anpower and p ro d u ctio n becom e. T h is demand
can be m et by th e a p p lica tio n of th e best a v a ila b le m ethods and
tech n iq u es to p ro v id e an in tegra ted p la n n in g , sch ed u lin g manpower
a llo ca tio n , p ro d u ctio n , and m a teria l flo w and con trol system . These
m ethods and tech n iq u es in clu d e netw ork p la n n in g sch ed u lin g and
ro u tin g co n tr o l, in ven tory co n tro l, sim u la tio n of th e sh ip
165
PWI1S
Product Structure
Levels
Ship
l
Hull Structure Hull Outfit O
'( / )
C/5
E
CD
Q_
Structural Zones Mcchinary Accommodation Cargo Hull Outfit Electrical
OnBl Type Cut Pull vo -a

Block Type Unit Type VO
CD
/ same as Mechinarv
I' / o
a.
Sub bulk Product co
o
"O
oi_
Sub Assembly Product Pallet for Unit Pallet for Unit Cut Pull Pa...;
Q .
CD
i_
CD
.C
e
Formed/Joined Parts Joined Parts Joined Parts Joined Parts
CD
C
o
Cut larts Cut Parts Cut *arts Cut Parts Cut Cab!: -t'
.c:
a>
Q .
Plates/Profiles Componcnt/Mafl , Componcnt/Mall Componcni/MafI O

O
Cable
CD
.C
-1<
*+

O
c
o
F i g u r e 4 4 0 P r o d u c t v/ori-: - r e : Jdontt h t r u o - u e c fir .-.e Lu I k C a r r i e r C /)
C/5
CD
Q.
o
O
CD
3
-o
os
Q .
CD
VC
(b) R e so u rcin g a n d u tilization:
T h is ship c o n ta in s 4 ,5 0 0 to n n es c f steel hull w ith slo w -sp e e d 2 9 2 ,3 8 3 m an -h o u rs, th at is a b o u t
60.5 p e rc e n t o f la b o u r b u d g e t o f 4 8 3 ,0 0 0 m an -h o u rs.
A n e stim a te o f lab o u r re so u rc in g and u tiliz a tio n fo r th e sh ip b u ild in g p ro g ra m m e is
illu strated b e lo w w ith F ig u re 4.21.
TABLE 4.21
Bulk Carrier Construction Labour allocation
Thousands Man 0/
/o
GrouD Description % or
No. Labour o f M an-hrs davs Mater
100 hull structure

(50% fitters,
50% welders) 61.0 294 27000 30
200 M ain Propulsion 3.7 18 2250 27
300 Power and lighting 3.0 15 1875 9
400 I-C and electronics 1.5 7 900 2
500 Auxiliary systems 7.5 36 4500 9
600 Out-fitting 7.0 34 4250 18
700 Engine Planning

QA tests 10.4 50 6250 2
800 Construction service

Rework 0.7 3 375 3
Totals 100.00 483 60525 100
From T ab le 4.21 w e could d e te rm in e th a t th e jo b sh o u ld req u ire the
167
following man-days of each trade:
TABLE 4.22
Table 4.22 - Manpower requirement:
TRADE MAN-DAYS MAN-MONTHS MA
Ship fitters 18000 . 900 450

Welders 18000 900 450
Machinists 3125 156 70
Electricians 5000 150 75
Pipefitters 3000 150 75
Sheet metal workers 2000 100 25
Joiners 2000 100 25
Painters 3000 150 50
Plus service crafts of:
Shipwrights 15000 75 25
Riggers 15000 75 25
Sheet metal workers 1000 50 17
Electricians 1000 50 17
Labourers 3000 150 50
1364
In addition we have 6250 man-days o f engineering (140 working drawings at 172 hours
each-6020 man-days) plus quality assurance, tests and trial and planning to total 6250 man-
days.
This information forms the basis for shipyard planning. The planning department would
have to start with the above data to determine the monthly manning for each hull to be
168
constructed. The contract provided 9 months actual construction time after receipt of materials.
The production process allowed flat labour curve for which the production hours indicated
would call for manning on each hull of approximately 1360 production workers.
Th yards planning staff would, in much more detail, through the original estimates and
determine the month-by-month manning requirements by trade. Sequencing is important so
that crews can be moved front the first hull to the second and so on, assigning the same people
the same work on the second hull etc. to avail the yard o f any labour savings the learner curve
affords.
The building schedule for the first ship has been so planned that building dock work
would be allotted 5.75 months and outfitting work would be allotted 5.5 months. The events on
the building dock were planned as follows:
1. Erection of the main hull block was to be completed 40 days before launching
in order to finish mockup test of the cell shots in all holds prior to launching.
2. Taking the shafting work into consideration, the main engine would be loaded
on board some 35 days before launching. Seven days before main engine
loading, the shelf center sighting must be executed.
The main schedule for the outfitting work was arrived at as follows:
1. Main outfitting work, including the official sea trial and delivery preparation,
was allocated
169
seven m on th s.
2. The o ffic ia l sea tr ia l was to be perform ed under
fu ll-lo a d c o n d itio n req u irin g fillin g co n ta in er
h o ld s w ith w ater b a lla st. T w en ty -fiv e days were
reserved betw een th e p relim in a ry sea tr ia l and
o ffic ia l sea tr ia l.
3. The exposed deck of th e b u lk ca rrier m ust be
p a in ted w ith in o rg a n ic zin c after sa n d b la stin g ,
p rio r to th e p relim in a ry sea tr ia l. T h is w ou ld
assure a good p a in t system free from large damage
touch up d u rin g co n stru ctio n . In order to fin ish
the work in th e en g in e room b efore sta rtin g th is
b la stin g , the m o o rin g tr ia l of the m ain en gin e
sh ou ld be ca rried out 95 days b efore d eliv ery of
the sh ip .
4. To a cc o m p lish item 3 of th e p reced in g , m ain
en g in e o p era tio n was to start 100 days b efore th e
d eliv ery of th e sh ip .
5. The accom m od ation deckhouse w ould be assem b led on
la n d and lo a d ed on th e m ain h u ll in one u n it
after la u n ch in g . In sta lla tio n of m ain en g in es and
sh a ftin g sh o u ld be perform ed 20 days after
lo a d in g the accom m od ation deckhouse.
4.5.4. Fundamental Measures:
Project Management Organisaion:
A sp ecia l p roject team for th is p a rticu la r
co n stru ctio n con tract was to be form ed , p rin cip a lly as a resu lt of
th e u n iq u e n atu re of th e p roject w h ich w ou ld n ece ssita te a more
170
co h esiv e approach to co n stru ctio n m anagem ent o rg a n sa tio n w h ich m ust
be setup to manage th e sh ip b u ild in g process. The p roject managem ent
o rg a n isa tio n o u tlin e in F ig u re 4.H, is su ggested .
The E x ecu tiv e C om m ittee w ou ld m eet about once a m onth
and is resp o n sib le for:
d em o n stra tin g sen io r m an agem en t's com m ittee to
and o v era ll sp on sorsh ip of th e w h ole program
a g reein g on in d iv id u a l p rojects and resources in
each phase of th e program ,
m o n itorin g progress and ach ievem en ts, and
re so lv in g b lo ck a g es and p r o b le m s .
The p roject S teerin g Group were esta b lish ed for each
of th e tw o p r o j e c t s at sh ip y a rd A and B resp ectiv ely . They were to
m eetev ery tw o to th ree weeks w ith resp o n sib ility for:
en su rin g th e projects proceed a cco rd in g to th e
program
im p lem en tin g changes resu ltin g from the p rojects
in to th eir resp ectiv e departm ents
ensure th e req u ired resu lts were a ch iev ed .
The p roject A ction Teams were to be led by th e p roject
m an ager.Each a ctio n team was to be made of sta ff and w orkforce
from th ed ep artm en t affected by the p roject and has th e
resp o n sib ility for:
d ev elo p in g and ca rry in g out th e p roject
d ev elo p in g the req u ired tech n o lo g y , m ethods and
procedures,
h ig h lig h tin g p ro b lem areas
17T
Executive Board
Committee Directors / Senior Managers
Consultant (Coordinator)
>^
Chairman
Project (from Executive C om m ittee)
Steering Project Manager
Groups Relevant Dept. Managers

Consultant (Pacilitator)
\ f
Project
Action Appropriate Personnel
Teams tasked with specific work
S o u rc e : JS P , 1995.
figure 4.11- Project Management Organisation
172
documenting results and benefits achieved,
assisting with implementation in their respective
department, and
assisting with training their own and other
department personnel.
The External Consultants were to be recruited from the
more advanced maritime nations and were to ensure shipbuilding
technology transfer to Nigeria over a period of at least five
years. They were to support the steering groups and action teams in
all aspects of their work, particularly in terms of technical
advice.
4.5.5. Required Information:
Emphasis was to be placed on the need for effective
communications between all departments throughout the shipbuilding
program so as to attain production targets and the schedule
maintained. This would also be necessary to resolve design and
construction problems. THe shipbuilding technology and methods used
were made known and adhered to by each of the department.
4.5.6. Standardization of Design and Equipment:
Another major requirement was that all ships be as
identical as possible. The shipyard located at Lagos would be the
lead design yard and required plans would be made available to the
follow yard, shipyard B located at Warri, for construction of the
ships. Drawing supplied to the follow yard would include all
drawings and documents necessary for construction of the ship as
173
generally described in the following and included those submitted
for approval, regulatory bodies and Classification Society (e.g.
Lloyds Register of Shipping London):
* key plans
* hull structural scantling plans
* piping diagrams
* electric wiring diagrams
* detail arrangement of machinery equipment
* outfittings, piping, ducting and electric
wiring
* drawings of major machinery, equipment and
outfittings
* purchase specifications
* test procedures
Alterations to these drawings were also to be supplied
to the follow yard whenever such alterations made in the process of
the design development, or to meet plan approval requirements. But
all detailed production drawings were the responsibility of each
individual shipyard. Problems dictated by production equipment or
facility design could require that a follow yard build the ship
using different erection butts or vary in order production ways
from the lead yard.
A major concern was that all systems and equipment be
as identical as possible for future maintenance purposes and for
standardisation of spare parts for all the seven ships.
1 74
4.6. Shipyard Capability and Capacity
4.6.1. Shipyard Facility.
The two shipyards, A and B envisaged for the country
should have to choose improvement in productivity as the key to
survivability and future success in the global shipbuilding market
place. It should adopt the shipbuilding strategy of the newly
emerging nation of South Korea's Hanjin shipyard as a model for its
shipbuilding technology. Its approach was to adopt mid 1980
facilities and concentrate on using the personnels more effectively
through integral processes (Nagatsuka, 1994). The building dock
should have up to date capabilities to build ships over 200 meters
with berth cranage and block shop size, cranage and access
dimensions that have no known limitation for the foreseeable
future. The two shipyards should use CAD concurrent engineering,
production oriented drawings, standard engineering procedures and
engineers standard details.
The potential throughput is 150,000 CGT per year. This
is equivalent ot ten 20,000 tonne DWT bulk carriers.
The shipyards' 1980 technology include steel
processing and include plate and shape pre-processing treatment
with conveyor handling, N/C burning machines, plate rolls and
presses. Line heating is used for plate shaping. Frame bending is
accomplished by hydraulic machine utlizing computer generated
templates or inverse lines. A panel line is used for flat sliffened
panels with one sided welding and automatic stiffner welding. Webs
line and other subassemblies are processed in a designated
subassembly area and fed to both panel line and shaped structure
shop. Pin jigs are used for ship's structure, Some panels and
shaped structure are joined to form 3 dimensionsal blocks. Multi
wheeled jack up transporters are used to move panels, assemblies
and blocks to the various shops, platens and berths. Equipment and
piping modules are constructed in a special outfit packing shop.
Areas are designated for "on Block" outfitting either before or
after block coating treatment.
Panels for the deekhouse are transported to a special
deekhouse construction shop for "on Block" outfitting and then to
an erection area. Once the structure and distributive systems are
completed the deekhouse is turned over to the joiner work and
furnishing contractor.
Material handling consists of conveyors and overhead
cranes in the shops, panel and block transporters outfit pallet
trucks, platen cranes and berth cranes.
The shipyards subcontract a significant portion of the
design and engineering work to design agents. Both the shipyard and
the design agent have co-ordinating staff in each other's premises.
CAD is to be used for all engineering and the
engineering department preparres all lofting and pipe plan
definition. Design for production is to be emphasized and
engineering documentation provided in the most suitable way to suit
structural block and zone outfitting constrution.
The Production Engineering group should perform
process analysis and works with Engineering to develop the
shipyard's Ship Definition. All machinery should be subcontracted.
The following particulars describe the major physical
ITS
characteristics of the shipyard.
A CRANES:
In Preparation Shop 2 0 5 tonne ~ ' 1
In Subassembly Shop 2 0 5 tonne
In Assembly Shop 2 0 10 tonne
In Panel Line 1 0 60 tonne with
18m
from floor to hook
In Block Assembly 2 0 60 toone
At Berths 2 0 135 toone at 30
j ib crane
B, BUILDING DOCKS/BERTHS
C. ACCESS 3/2 0 250m x 35m x
10m
Doors into/from preparation shop 4m high and 4m
wide and Subassembly Shop, and into
Panel Assembly Shop,
Door from Panel Assembly Shop 6m high and 15m
wide,
Doors into/from Block Assembly 15m high and 18m
wide.
D. TRANSPORTERS
Into/from Preparation Shop 5 tonne, capable of
and Subassemly Shop handling plates up
to 15m by 3.0m and
profiles up to 15m
by 0. 5m
T77
Into/from Assembly Shop 10 tonne, capable
of handling panels
up to 15m by 3m
From Panel Line 60 tonne capable of
handling panels up
to 15m by 15m
From Block Shop 250 tonne, capable
of handling blocks
up to 30m by 15m
E. SHOP AREA
Assembly Shop 20,000 sq m
These physical characteristics of the shipyard are a
part of the industry's desire to introduce assembly line methods
(Acker and Bartlett, 1980). In other words the trend in ship
construction is toward the increased use of mechanized equipment
and larger structural assembly units to shorten time on building
docks.
4.6.2. Number of Employees of the Shipbuilding Sector
Using Hanjin shipyard of South Korea as a model for
the Nigeria's manpower needs in the shipbuilding sector, the total
number of employees of 4521 as at 1994 could be used as notional
number. Both shipyards have to capacity for a potential throughput
of over 150,000 CGT annually.
The number of employees by sector are as follows:
Engineers 406 12
T78
Skilled Workers 1586 47
Clerical Workers 201 6
Sub-contracted workers 1157 35
Sub-total 3350 100
Non-shipbuilding
Sectors 1171
Total 4521
With regard to educational instructions providing
marine engineering course in Nigeria, there is only one University,
RSUT, Port Harcourt and F.U.T Owerri that train technical managers
in marine transportation. But these two higher Institutions cannot
train enough engineers and technicians for the shipbuilding
industry. However there are over 5,000 graduate engineers trained
in other disciplines that join the labour market each year. It is
envisaged that many of these engineers would 'convert' to marine
engineers. Therefore, the existing faculties of these two
Universities should be strenghtened to train the engineers.
An increased use of industrial engineers may be found
to be beneficial espeically in production planning, scheduling and
construction. Presently, the Japanese are using twice as many
industrial engineers as any of the European Yards (MARAD, 1990).
4.7. Implementation:
This section describes the sequence of actions related
to the creation of Nigeria's shipbuilding industry and the
introduction of the marine transportation system, bulk carrier etc.
- tT 9
4.7.1. Immediate Take-Off of the Shipbuilding Programe
The full implementation of the shipbuilding programme
using the proposed shipyard capacity would be a long process. But
the immediate take-off of the programme is recommended for 1998
with a shipyard located in the commercial city of Lagos as the
lead yard and the other follow shipyard located at Warri. This
would entail an initial investment of about $70M from the escrow
account kept by the NMA; and with an economic life of 50 years
(Hunt,1995).
The shipyards should be ready for ship construction ^>y
December, 1998:
1. Choose the commercial city of Lagos and cite a
modern shipbuilding yard capable of building
20,000 DWT bulk carrier.
2. The follow shipyard should be located near Warri,
possibly at Burutu and would be billed to start
simultaneous construction of ships with the
leadyard.
3. A project management organisation should be set
up to manage the shipbuilding process.
4. During the early stages of implementation
emphasis should be on reporting and corrective
action. But management also should recognise the
need for long-range program planning.
t 80-
4.7.2. P la n fo r I m p le m e n ta tio n
The plan for the full implementation should consist of
three phases, namely:
(a) Cradle period, from 1999-2003, that is, five
years;
(b) Cultivation period from 2004-2008, that is, five
years;
(c) Capacity expansion period, from 2009-2019, ten
years, at the end of this period a total of about
150 new ships must have been constructed and by
the year 2020 replacement of obsolete tonnage
would commence.
4.7.2.1. The Cradle Period; 1999-2003
With the completion of the shipyards by December, 1997
the construction plan depicted in Table 4.So for the construction of
the seven bulk carriers must be strictly adhered to. All the seven
ships are to be delivered in 1999 as per the schedule. Subsequent
schedules for the construction of the next batch of seven ships
should be made until a total of thirty-five ships have been
delivered by the year 2003. This plan allows top management to
provide its guidance at the outset of the project and also to make
its own evaluation of progress against plan.
4.7.2.2. The Capacity Cultivation period; 2004 - 2008
Based on the strength of its successful experiences as
the builder of a series of the handysize during the cradle period,
18*
the government should view promoting the development of its economy
by taking strong backup policy. The government could decide to
positively foster and support the development of its shipbuilding
industry as one of the key heavy industries. The shipbuilding
industry has to be strengthened in the area of its competitiveness
by improving technological competence and productivity and to be
able to accomplish satisfactory performance in the construction of
a variety of ships.
4 . 7. 2. 3. Capacity Expansion Period; 2009-2019
The shipbuilding industry has to strive for expansion
of production, work force, and scale of business management by
making its shipbuilding facilities larger and modernized. The
shipyards should be capabable of building larger ships into the
world shipbuilding market by winning new-building contract for
export.
Each step in the implementation plan has a deadline.
The various steps needed in the first phases of implementating this
shipbuilding process can be presented in a Gantt diagram, Figure
4.J^These steps include the following:
* Conclude preliminary talks with the authorities
involved in signing letters of intent related to
the planned shipyard facility service.
* Begin confidential surveys of land for the
intended marine transportation system. If
relevant, begin preliminary negotiations with
182 i
Letter of intent
S e le c tio n o f lo c a tio n o f s h ip y e a rd s ,
b u ild in g d o c k s , s ig n in g o f a g r e e m e n ts
MM A
S p e c if ic a tio n s a n d e v a lu a tio n o f b id s ,
s ig n in g o f c o n tr a c t fo r b u ild in g th e b u lk
c a rrie rs /s h ip y a rd .
B u ild in g o f t h e b u lk c a r r ie r s , d e liv e ry
B u ild in g o f d o c k s , r a in p s , p a r k in g s p a c e s
e tc .
S e le c tio n o f p e r s o n n e l fo r in s p e c tio n ,
o ffic e rs a n d c re w
T e s tin g o f d o c k s , r a m p s , s e a tr ia l w ith
s h ip s
1997 . 1998 1999 200
f i g u r e 4.1J* A G a n t t r e p r e s e n t a t i o n o f s t e p s n e e d e d 383231
rr 1 , 1 s e
of im p lem en talin g the hulk carrier seiv ice
J
landowners.
Complete agreements on lease, purchase and
development of shipyard facilities.
Distribute outline/specifications of items to be
acqu-ired or constructed to prospective
contractors and brokers. Ask for bids to be
tendered before a given deadline.
If publicity is required, announce the planned
service. Complete specification and other
documentation for the construction of berths,
ramps and parking areas. Distribute these to the
prospective contractors.
Evaluate bids for services, deliveries and
construction.
Complete specifications and drawings for all
major items. Begin final negotiations with
contractor(s).
Sign a contract of delivery for all major items.
Establish deadlines for all stages of the
project.
Assign personnel to inspect and follow up the
construction and deliveries. Allocate key
personnel to operate the system. Make aggreements
concerning the starting dates and pay of
personnel.
Complete the manning arrangements for the ships.
Begin marketing the service. For publicity invite
key visitors to the shipyard. Prepare lists of
officials and guests to be invited to the opening
ceremony.
Carry out trial tests- of the vessels for
machinery power, speed, manoeuvreability,
loading/unloading, officers and crews, life
saving equipment and installations.
Complete final trials and adjustments of vessels,
shipyard equipment and facilities, mooring
systems, radio, communication, navigation
equipment, storage space for cargo and supplies
and any other items specified in the contract.
Commission vessels and facilities.
Handover of vessels and facilities.
Open the service.
Continue to follow up the service and instigate
corrective action.
Evaluate the service.
Make provision for fleet replacement or other
items at the end of the economic life. If
necessary make preparation to discontinue the
service.
Make provision to dispose of worn out complement
and for personnel changes.
185
4.8 D ISCU SSIO N O F RESULTS
This section discusses all die findings and results o f this research work. In course o f this
study, it has been ascertained that three imbalances exist in the Nigerian maritime industry,
namely in die areas o f freight earnings/conservation, ship-ownership, and cargo sharing. With
only one ship, MV ABUJA purchased in 1995 and in the national fleet, u follow s that the
Nigerian seaborne trade is being lifted by foreign-flag ships. Both the huge amount o f freights
and insurance associated with the carriage o f these cargoes sum up to $1.3 billion annually.
This amount is paid to foreign ship owners. It therefore results in an opportunity cost that
negatively contributes to die balance o f payments to the Nigerian economy.
The 3 percent commission on all freights generated through the seaborne trade and
collected by the National Maritime Authority would be $39 m illion annually and actually a
mere pittance when compared with about 50% o f the freights (about $600 m illion) volume o f
coargo that would be earned by national fleet in accordance with the National Shipping ftolictj
o f 1981 and UNCTAD sh i ppi^cargo sharing formula o f 40:40:20.
The strategic importance o f ship ownership cannot be ignored because entrusting the
ocean commerce o f the nation in the hands o f foreigners is fraught with many dangers. In
tim es o f national emergency, few foreign ships would be w illing to sail to Nigerian ports,
insurance covers and premiums would be increased for those ships w illing to call at the ports.
But most importantly die nation's competitiveness in international markets is lost and a crucial
component o f its seapower would be eroded.
To redress this situation, the government has promulgated the National Shipping Policy
~"t86
Decree 10 o f 1987, thereby establishing die NMA, empowered to implement every aspect o f
the Decree as well as establishing the Ship Acquisition and Ship Building Fund (SASBF). In
all the government estimates an addition o f 150 new ships. One modality for fulfilling this
need is through the findings o f this research work by examining some aspects o f Decree 10
o f 1987 through estimating the construction cost o f comparable vessels in Nigeria and foreign
countries.
The analysis o f die Nigerian shipping market from 1979/80-1988 constituted the
mission requirements o f the vessels that would be employed in the national fleet. The market
characteristics, that is, types o f ships and cargo, replacement tonnage, the market volume,
market sector, and target market were obtained. That is, bulk carriers constituted over 64% o f
the potential market, general cargo constituted 22%, containers constituted 12%, and fishing
trawlers constituted 2%. Bulk carriers were chosen as the product-mix, an interesting market
niche for this target sector and was determined to have an annual growth rate o f 3.05 percent.
From the above discourse therefore, when faced with blank order book the Nigerian
shipowner must make a decision as to die market sector to be targeted. This decision has often
in the past been made intuitively due to lack o f defined methods or constraints against which
to analyse the product-mix. According to Scott (1995), successful entry into the merchant
shipbuilding sector w ill be a matter o f strategy. The era when shipyards could aim to construct
all types o f vessels according to market demand has finished, and most shipbuilders now
specialize. This enables organization such as NMA and facilities to be correctly matched to
the market sector, bulk carrier.

187
Choice of the bulk carrier size was determined by considering a number o f factors
including the tendency to increase die average ship size as die economy o f scale that can be
obtained and that a larger ship would be more economical based on several factors. A larger
ship operating at the same absolute speed has a lower unit resistance. In addition, the larger
%S
ship can operate in higher sea states before speed^ffected either by arbitrary slowdown due
to severe motions or just die natural degradation o f speed in waves. Construction costs per unit
o f cargo carrying capacity also go down as ship size increases. In replacing the 16,000 DWT
overage ship (Defender) in the defunct NNSL the decision was to substitute it with a new ship
(Challanger) in the range o f the Handysize/Handymax (20,000 up to around 4S,000 DWT).
This bulk carrier would also meet up with the growth in shipping demand in implementing the
National Shipping Policy.
The bulk carrier characteristics for this study resulted from the basic design approach.
Both the commodities or the cargo carried aboard the ship and for this trade, navigational
constraints and physical constraints especially existing at the Nigerian ports were taken into
consideration, specifically the lim iting draft o f 8 meters . The resulting design could have
maneuvering capability in the Nigerian waters and at ports o f call overseas. This bulker has
been adapted from existing ships that form its database.
The construction cost estimates derived are close approximations when compared with
the forecast cost (S21.SM) in the literature review and examplified from die construction cost
o f die number one shipbuilding country, S.Korea (S24.2M). The accuracy ratio o f 12.S percent
was within the model's Budget Estimate o f +30 and -15%. Interestingly, this estimated price
188
is considered one o f the data sources from which to determine foreign price.
When compared with construction cost o f Nigeria, its comparative cost advantage is
43.8%. When S. Korean cost is compared to US. cost (S26.4M ), U.S comparative cost is 9%
disadvantaged, but this can be neglected and the cost in the two countries are about the same.
For this reason, analysts in die U.S. maritime industry have been urging the U.S to re-enter die
merchant shipbuilding industry that it abandoned in the early 1980s as result o f high
shipbuilding compensation prevailing in that period. It canysinferred from these results
confirming die report according to 1984 research findings o f the U.S Maritime Administration
that it is true that in die Third World, cheap-labour shipbuilding industries are becoming more
effective in high-volume standardized production.
During the 1980s and 1990s the governments o f traditional shipbuilding nations (OECD
except USA) have been intervening with all types o f subsidies to prop up the industry. But
from 1998, die subsidies would be terminated and ship prices are bound to soar to new heights.
But the question is whether Nigeria can afford to continue to purchasing overpriced foreign-
built ships inspite o f possessing some capability to resolve her long-term need for ocean-going
vessels locally? The economics o f ship system construction and operations determines success
or failure, but usually small differences in cost between competitors are decisive which from
this analysis tilt in favour o f Nigeria. The prevailing economic conditions also favour
investment in shipbuilding by foreign investors, government and the private sector, since many
o f the traditional European shipbuilding Nations are seeking econom ic co-operation among
themselves and with developing nations in this area.
t89
The results obtained with shipbuilding experience (learning curve) are used to predict
the future direct labour costs for identical series o f manufacture over some period. These
factors are taken into consideration, shiplabour for the first ship, shipbuilding rate, anticipated
inflation rate during the period, shipbuilder's cost o f money (interest rate) and also the learning
rate. These results become increasingly important and necessary tools for bidding, bargain
during negotiated contracts, cost change estimates and adjustments. The learning curve is also
a useful method for the comparison analysis o f economics o f ships constructed under different
methods, such as zone technology and system-planning method.
Another important application o f this powerful technique is in die area o f Construction
Differential Subsidy (CDS) Application. A s soon as a shipowner files an application for aid
in construction, the government or die finance house begins detailed reviews o f submittals and
evaluation o f the vessel under die assumption that the same vessel is to be built at same time
in a foreign low-cost shipbuilding nation. The price is extremely important as it is the basis
for calculating the construction subsidy to be given, especially in the US.
Prices o f ships and their components are dependent on place and time o f manufacturing,
as w ell as on negotiations (Gallin, 1996). In this study, figures from the US., U.K ., Japnese,
S. Korean, and Nigerian shipyards based on deliveries in 1996 are assumed. The prices with
construction cost implications, derived from this study are o f course indicative price lists, but
they are sufficiently valid for a comparison o f alternatives, with the most cost comparative
advantage in favour o f Nigeria.
V essel replacement planning in the national merchant fleet is the decision o f the
190
National Maritime Authority's top management The idea to locally resolve the long-term need
for ocean-going vessels must be nurtured now. The time is ripe and most auspicious with a
developing economy and labour intensive work force. This would be supported by the political
w ill o f the government and garnished by D e u s.
t9f
CHAPTERS
SUM M ARY, CONCLUSIONS, RECOM M ENDATIONS
5.1 Introduction
This section summarizes the reearch work carried out during this study, draws
conclusions from the findings and results, and finally makes recommendations.
5.2 Sum m ary o f the W ork
The research work has dealt with the economic factors affecting the shipping
industry, the relative cost o f construction o f comparable hndysize bulk carrier in Nigeria
and in foreign countres (U S ., U .K ., Japan, and S. Korea), and the prospects o f
shipbuilding industry in Nigeria. Both the prevailing and potential econom ic factors with
regards to SAP and which w ill impact expansion o f the shipping industry by planning and
developing the shipbuilding industries have been discussed. Central to all these issues is
estimating the cost o f ship construction.
With respect to som e o f the objectives stated in Decree No. 10 o f 1987 establishing
the National Shipping Policy, the study:
1. Reviewed the history o f shipbuilding worldwide. Development o f
shipbuilding industry in developed countries o f U .S , Japan, United
Kingdom, the emerging nation o f South Korea and a developing country
like Nigeria was examined with a focus o f estimating the relative cost o f
construction o f comparable vessels in Nigeria and in Foreign countries.
2. Determined through the market analysis and evaluation o f the Nigerian
shipping market the type (bulk carrier or handysize), size, speed, method
192
o f propulsion o f the vessels which should be employed in the National
Fleet, etc.
The estimated costs for the construction o f the targeted market product-mix,
handysize model based on the basic design are $24M (U .S .), $25M (U .K ), $27M
(Japan), $22M (S.K orea), and $15.3M (Nigeria). These costs with price implications are
indicative price lists from which to determine foreign ship prices. T h e se
results show changes in the relative cost advantage in favour o f Nigeria to the tune o f
77 %. The overriding econom ic factor used here is the differential shipyard wage rate
among shipyards in the foreign countries. Wage gaps were established to exist between
the foreign countries and Nigeria. These changes in relative cost structure are only a part
o f the com petitive environment, however, they have a very large potential impact on the
prospect for N igerias commercial shipbuilding in the 1990s and 21st Century.
The simulated econom ic performance o f each vessel built in the foreign countries
was studied. Under the same operating conditions the economic index o f the rate o f
return, IRR on investment was investigated. The result was that the IRR obtained from
operating the Nigerian-built vessel was the highest (0.2055) and also in favour o f Nigeria
to the tune o f 77 %.
The design approach, while envisaged to producing the lowest initial ship
construction cost, is intended to produce an extremely high quality ship built at
competitive cost in Nigeria, which a discerning shipowner w ill recognise as an attractive
long-term investment.
t93
The study has also provided insight into these cost changes and other aspects
of the competitive environment through a market- focused analysis o f price, product,
promotion, and position. By defining a market hierarchy, both the potential and
projected m arket for these analysis clearly delineate avenues towards enhanced
Nigerian competitiveness in the maritim e industry o f tomorrow. With abundant human
resources labour productive factor o f 2 .2 2 , cheap energy, budding iron and steel
complex among other factors, it is envisaged that Nigeria like China and South Korea
would join the shipbuilding world as a low cost builder.
The ability o f Nigerian shipyards to meet the projected demand has been examined
under the precept that the availability o f skilled manpower would limit her
shipbuilding capacity. But an increased use o f industrial engineers may also be found
useful. Presently the Japanese and the S. Koreans are using twice as many industrial
engineers as any o f the European yards (Carson, 1990). The education institutions
should expand their curriculum to include production and planning concepts for in
shipbuilding. The need to replace existing liner tonnage is critical for the Nigerian
shipping companies. Any new or replacement tonnage for die national fleet would
create employment for Nigerian shipyards. Based on this analysis, significant
opportunities for commercial vessel construction are forecast for Nigerian shipbuilders
of tomorrow, primarily through replacement o f die aging and obsolete vessels in the
national fleet. This domestic business base would furdier improve the competitive
position of Nigerian shipyards, possibly allowing diem to win construction contracts
for a limited share o f foreign-trading ships.
194
5.3 Summary of Findings
Retonnage o f Nigerias merchant fleet of 150 new ships (about 3 million
DWT) is approimately a $3 billion business apportunity for world shipyards. MV
Abuja, a 6270 DWT container vessel was purchased from Poland in 1995 at the
cost of $20 million. A similar vessel built in Nigeria could sell fro less that $15
million as the results from our study have shown. It could be proper to suggest,
therefore, that this project offers an excellent opportunity for Nigeria to participate
signiftcandy in this enormous opportunity.
Rather than acquiring any product being offered in the world market, the
handysize bulk carrier, the result of this project has been derived for this study
through a market-focussed analysis of the Nigerian shipping market. Its physical
dimensions, powering and characteristics have lieen carefully chosen to reflect
technological changes associated with replacing die obsolete 16.000 DWT general
cargo vessels in the defunct Nigerian National Shipping Line (NNSL).
As a model for this study, the handysize construction cost was estimated
for each foreign country studied using the prevailing differential ship labour wage
rate, Nigeria has the least construction cost of $15M, asures tliat high quality
product through design, construction and classed by at least one of the leadidng
Classification Societies namely the American Bureau of Shipping or Lloyds
Register of Shipping, London.
The practical application of the project is that the derived costs could be used to
195
calculate the best possible estimate for the shipbuilding project on the basis o f a
reasonable schedule, known resources and management expectations. These elements if
properly coordinated will lead to resonable budget that can be used as a guide through
the project maze.
The shipbuilding program m e has been scheduled to last 20 years, from 1999. This,
in essence constitutes the time budget. Having identified'these three constraints associated
with this project, it is expected that all management functions should operate within these
constraints.
5.4 Conclusions
The decision by the National M aritime Authority (NMA) to retonnage the national
m erchant fleet and the acquisition o f 150 new ships would entail a $3 billion m arket
which is the largest business opportunity out o f Nigeria for world shipbuilders. It will be
very easy for Nigerian shipyards to compete on a price basis w ith Korean, Japanese,
American, British shipbuilders in the construction o f designs w hich these shipbuilders
are currently offering. The results of this project indicate an excellent opportunity for
Nigeria to participate significantly in this enormous opportunity.
Unless positive action is taken to create a Nigerian alternative, this m arket
opportunity will be lost by default to Japanese, Korean and a few European shipyards.
5.5. RECOMMENDATIONS.
1. Successful entry into the m erchant shipbuilding industry would be a m atter o f
strategy. The era when shipyard could aim to construct all types o f vessels
t 9*
according to demand has gone and most organisations now specialize in one or more
types of merchant ships. This enables organizations and facilities to be correctly
matched to the target market sector. This study has identified the bulk carriers and
combined carriers of the handysize/handymax size as the targeted market product-mix
and the Nigerian shipyard should be geared to produce this class of ships. A
comprehensive R & D programme should be embarked upon tovalidate the unique
aspects of its design and construction.
2. The physical constraints of the shipyard such as length, beam, depth of water and
capacity must be considered. Shipyards can be classed according to the generic ship
type corresponding to the maximum size of ship that could be constructed. The
Nigerian shipyard would be constrained by size, but a larger graving dockyard would
entail investment, a positive cost benefit and an advantage. The advantage for a larger
shipyard lies in the fact that it can "trade down" to build smaller vessels, if that is
what the market demands, giving an added flexibility. The smaller shipyard cannot
trade up.
3. Series production of bulk carriers should be undertaken. It takes the advantage of
learning experience, minimizes the labour content decreases building times, and
furthermore reduces the acquisition costs of the vessels. A Nigerian shipyard with a
learning rate of 85 percent would produce the 10th vessel in the series studied at the
cost of $8.9M. a 41.8% significant savings from the original cost.
197
The industry should implement strict cost control measures to reduce overhead
expenditures. In essence wage restraint through labour-management cooperation
should be sought for.
The Nigerian shipbuilding industry should recognise the technology and
innovations taking place in the maritime industry worldwide and be able to adapt
these changes to its needs. The need is. amplified by the revolution in shipbuilding
methods which began in the U.S. shipbuilding industry in 1979, that features a
shift in logic
i. That is a move from expensive and time-consuming system arrangement
and detail to zone orientation for most design and production engineering
efforts.
ii. An industry that is increasingly becoming more effective in high-volume
standardized production.
iii. The fourth-generation shipyards, which incorporate the principles of group
technology and are characteristised by greater flexibility in planning and
throughput requirements. Production is synchronized to minimise buffer
storage and transport requirements. Block size is optimized to accommodate
zone outfitting and facilitate erection in order to maintain balanced work
flow. W hereas the process type yard requires series production and massive
through- puts for efficiency, these product-oriented yards realise the benefits
of mass production for small numbers o f sim ilar ships and have the
management flexibility to effectively build a wide variety of ship types and
sizes.
196
6. The importance of computer applications in shipbuilding must be emphasized.
Computer Aided Design (CAD), Computer Aided Manufacture (CAM), Computer
Aided Engineering (CAE), and Computer Information Management (CIM) are but a
few of such technological developments. Similar computer applications have led to
highly automated-and-control ships of one-man bridge or fully automated engineroom.
7. Manpower constraints would limit the ability of the Nigerian shipbuilding industry to
meet the possible future demand for ships. Among die four higher Institutions in the
country that teach maritime - related courses, it is only Rivers State University of
Science and Technology, Port Harcourt and Federal University of Technology,
Owerri that offer degree programmes in marine engineering, shipbuilding and
maritime management technology. Its inability to cope with demands for graduates
in this field has been cited. The teaching, training and the research facilities in these
areas should be expanded and upgraded to cope with the "conversion of engineers,
professionals and other skilled manpower from over 10,000 engineers with allied
professions that join the labour market every year.
8. Two shipyards with a capacity to produce 7 ships each year would conform to the
realm of economic and basic shipyard capacity. With shipbuilding production
commencing in 1999, the projected demand for 150 new ships in the national fleet
could be met by the year 2019 and replacement of obsolete ships would commence
thereafter.
199
9. The Ship Acquisition and Ship Building Fund (SASBF) should be increased to
about $300 million to effect the construction o f the two shipyards and facilities
(estimated cost o f $150 m illion based o f South Korean Hanjin Shipyard), and to
enable the initial take-off o f the shipyards.
10. As Nigerian shipbuilders consider strategies to develop a competitive position in
the 21st Century, they need to build sustainable competitive advantage that extend
the recent improvements in cost competititivesness. Any nations governm ent can,
and often does, give its yards a decisive competitive edge through policies that
benefit both builder and owner.
5 .6 A reas F o r F u rth e r S tu d y
The following section consitutes some areas for further study.
5.6.1 N u m b er o f Ships R eq u ire d in th e N ational FleetThe size o f the national fleet,
and determining the correct quantity o f new and replacement tonnage requires a careful
analysis o f costs and benefits that are inherently difficult to quantity.
5.6.2 P roductivity Im prov em ent M ethods

Equally important to improve productivityis the technological competence which serves
as the asis for the development o f design and engineering capabilities. Labour-saving
technologies represent the m ajor trendin shipbuilding and should be m ost actively
advanced.
5 .6 .3 Shipbuilding Technology
The technology for building ships should be explored either through pre-fabrication and
assembly or group technology or system-oriented methods or other methods. Such
methods should be<geared towards building high quality products and shortening time of
contruction and producing low-cost ships.
200
5.6.4 Manpower and Training
The range o f wages between skilled, seini-skilled, and unskilled
workers is quite narrow. The methods o f achieving high skills, high
productivity through interchangeability between skilled workers should be
sought. The required manpower for the shipbuilding industry should be
drawn from m arine engineers, marine technologists, maritime managers,
engineers and allied professionals, and appropriate training and
"conversion" for services in the industry be undertaken early in the
implementation programme.
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Zein, J. J. and Hillman, J. E. (1994) "The Contribution

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May, pp. 1-10.
211 .
/
Mmi
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1" 1 hj i m
r sum
v fl
Supplement to Official Gazette Extraordinary No. 26. Vol. 74. 11 Ih May
1987 Part A
NATIONAL SHIPPING POLICY DECREE 1987
prohibited without p e r m is s io n .
NIGERI a
ARRANGEMENT OF SECTIONS
TKE HflTIOHflL S K IP P inS POLICY PSTAtittimrwror thcmatbmalmuiitmavtmmitv i* A\\L*ALRlTURfS

rowowtiONorTit autioiitv > utl|N1\On\tlM
AIM SANOOifCCTSor TinAI/TIKMfTY * MAIR10M ALIRH.t'LIIRIXS
rv*moMtor tiicAimoarrv .1 |NT|RFRflAlRJN
srcrtAi nmoioNsor tiautibrttv jr nfAfON
Further reproduction
DECREE 10 OF 1987 4APV
*T
0IMTM
IRM (N
ffV.TOf(XRtCTOA-CINCRALAM)OTMMSTAM01III!
CONDITIO*! PONCHANTINGOTNATIONALCARB URSTATUSVU
U>tmsc COMPANIES
l*O*OURTIRCDVUUli
carriaccorcarco
pawcnts rot UMvtrcs iinmiu innkoun si akjris
iori u.HnriiANci to mrRAVcost tNCiraatoinf vaciiaii*.
LM OM TMlAM'Cl
of the copyright owner.

N 4I47IMNCIor NATIONALCAARJIJIWSSILAM
wciaianflagswn
OOTlkR
ESTABLISHING M NPACQUISITIONandimpbuiioimc
IXRORTIANDIM PORTS
shippingsirvieis. itc
poriign exchangeiarnincsrtou imps
P
FRAO
YM
MStvHrIPT
SOFCOMALMlliUftVGOVtRjttltXTONlAM
NIM
.S
CARGOCONTKLANDSHARING
RfVOCATIONOTNATIONALfARAILRSTATUS
utarushmcntor apointroorhcornci
with permission
THE NATIONAL MARITIME AUTHORITY tSTARUSHM CNTOf ROOAIM
:CtNTRU
COM MISSIONPAVARUTOSOOAINCCCNTU
NIGERIA FUNDOF Till AUTHORITY
ASMMl LSTIMATIS. ACCOUNTS ANDALT)IT
-o
oo
=3
oo
./ ^ National Shipping Policy 1987 No. 10 ^ National Shipping Policy 1987 No. 10
(d) ensure the greater partidpaliofi o f indigenous shipping lines in liner con*
ferences thereby infliteiidflg the dedsioa making processes o f such liner SECTION S: SPECIAL FUNCTIONS OF THE AUTHORITY.
conferences serving Nigerian intemalional sea-borne trade;
I (I) The Authority shall investigate, determine and keep current recordsof:-
'*'(*) promote the acquisition o f shipping technology by creating and diversi
. (a) ocean services, routes and lines from Nigerian ports to foreign markets
fying employment opportunities in the shipping Industry, through the
as may be determined by the Minister to be essential for the promotion,
nimubtson and protection o f indigenous shipping companies;
development, expansion and maintenance of the foreign commerce of
Nigeria:
(0 assist in the economic integration o f the West African sub-region:
(b) bulk cargo carrying services for the purposes of promotion, development,
(g) offer- protection to Nigerian vemcb Dying the nation's Dag on the high
expansion and maintenance o f the foreign commerce o f Nigeria, the national
seas and world seaports:
defence and other national requirements provided by Nigerian flag vessel
(h) increase the participation by indigenous Nigerian shipping lines in ocean whether or not operating on a particular ocean service, route or line:
shipping through the application o f the provisions o f the UNCTAD Code
(c) the type. sue. speed, method o f propulsion and other requirements of
on General Cargo and by entering into bilateral agreements, or othei
vessels which <houid be employed:-
suitable arrangeTuenis:
(i) in such services or on such routes or lines and the frequency and
v / (i) encourage the increase o f ownership o f ships and the achievement of
regulari'y o f the sailings o f such vessels, with a view to furnishing
indigenous skills in maritime transport technology;
adequate, regular.certain and permanent service: or
fj) achieve a system atic control o f the mechanics o f sea transportation: and
(iil to provt ie the bulk cargo carrying services necessary for the promotion,
(k) promote the training o f Nigerians in maritime transport technology and m ainten.nee and expansion o f foreign commerce of the Federal
as seafarers. Republiu o f Nigeria and itsnational defence or other national require
ments whether or not such vessel operates on a particular services,
SEC TIO N 4 : F U N C T IO N S O F T H E A U T H O R IT Y role or .ine:
The functions o f the Authority shall b e - v Id), the relative cost of construction of comparable vessels in Nigeria and in

fal to co-ordinate thc implementation o f the national policy on shipping as foreign countn-'s:
may be form ulated from time to.tim e by the Federal Military- Government:
(e) the relative cdst of managing the commercial aspects of the sr.-.ppmc
tr> to ensure that Nigerian national carriers exercise fully Nigeria's carrying rights industry stich is scheduling, chartering in or chartering oui of vessels,
of at least 4 0 percent o f the freight in revenue and volume of the total trade to allotment of cjtrgo space, cargo pricing and cargo soiicmnc. marine in
and from Nigeria: surance. maintenance, repairs, wages and subsistence of officers and crew.
and all other itepis of expense, in the operation of comperaole vessels under
id to grant national carrier status to indigenous shipping lines: the laws, rules and regulations o f Nigeria and under those foreign countries
Id) to m onitor the activities of vessels o f the companies granted nattonal carrier whose vessels are substantially competitors of any such Nigerian vessel-:
status; vr ( 0 the extent and rharacter of aid and subsidiesgranted by foreign govern
ments to their merchant marine:
with permission
let to grant assistance to indigenous companies for lleet expansion and ship
ownership;
(g) the number, location and efficiency o f shipyarcs existing -it:r.ecateotthe
(0 to regnlnre liner conferences and national carriers: and ' promulgation of this Decree or thereafter built in Niceria.
tg) to perform such other functions as may be required to achieve the aims
^ (h) new designs,methods ofconstructionand typesofequierv.er.t rotvessels:
and objects o f this Decree or any national shipping policy as may be (i) thepossibilitiesofpromoting thecarryingoftheforeigntrace v Nigeria
V formulated by the Federal Military Government pursuant to this Decree. Nigerianvessels:jnd -o
C
o3O
-o os_
Q.
213 CD
.National Shipping Policy 1987 No. 10
r m
National Shipping Policy 1987 No. 10
(j) inland water transportation indudag their relation to transportation by
land and air.
SECTION 7: CONDITIONS FOR GRANTING OF NATIONAL
1(2) The Authority shall for the purposes o f aibsection I (a) o f this section consider CARRIER STATUS TO SHIPPING COMPANIES.
1 and give due weight to:-
(1 ) Thc Authority may p a s t aaoooat carrier su tu i to a shipping company if:
(a) the cost o f maintaining the ocean lilies;
(a) Nigerian individuals , of enterprises fully owned by Nigerian individuals
have at least 6 0 pet cent o f its equity shares and the company a registered
(b) the probability that thc ocean lines cannot be maintained except at a
in Nigeria;
heavy loss disproportionate to the benefit accruing to foreign trade;
(b ) the vend s owaed by the company operate on the deep sea and not on the
(c) the numbers o f sailings and the types o f vessels that should be employed in
the oceans lines: Nigerian coastal or inland waterways;
(c) the head office o f the company is located in Nigeria and its management
(d) the benefit the maintenance o f the ocean line may afford to the foreign and control is directed fron its Nigerian head office;
* trade o f Nigeria: and
(d) the company owns at least one ocean-going vessel o f not less than 5,000
(el any other facts or conditions which the Authority may from time to time net registered tonnage;
- determine as necessary.
(e) the terms and conditions if the employment o f seafarers engaged by the
|StC T IO N 6 : APPOINTMENT OF DIRECTOR G ENERAL AND OTHER company are in conformity with Nigenan laws and accepted international
STA FF O F THE AUTHORITY rules and standards;
1(1) There shall be for the Authority a Director Genera) who shall be the Chief
Executive and who shall be appointed by the President. Commander in Chief of (0 the vessels o f the company, are registered in the Nigerian Register of Ships
Armed Forces and the vessels satisfy all conditions stipulated in the Nigerian Merchant
Shipping Act 1962 as amended; and (1962 NO. 30.)
(2) The Director General shall be responsible tot the Jay to day administration o f the
Authority. (g) 100 per cent o f the crew and at least 75 per cent of the shipboard officers
including captain and chief officer and wherever possible chief engineers,
jl3) The Authority shall appoint a Secretary to the A uthority who shall keep the are Nigerians j

I records and conduct the correspondence of the Authority and perform such other
Ju n es as the Authority or the Director General may from time to tune assign
to him.
SE C T IO N 8 : U S E O F C H A R T E R E D V E S S E L S
(41 Without prejudice to the generality of subsection ( II o f this section, the Authority
( 1) The Authority may allow national carriers to use chartered vessels when vessels
' shall have p o w e r-
belonging to the national carriers are insuficient for the cargo available.
la I to appoint such othet staff as it may determine. ) Nigerian operators wishing to charter vessels shall make nauonal earners operating
National flag vessels their first choice and consider other vessels only when vessels
>bi to pay its staff such remuneration and allowances as it may. with the
are not available as stipulated in subspction ( I ) o f this section.
approval o f the Minister, determine;
with permission
icl to pay in respect of any staff such pensions and gratuities as are payable to S E C T IO N 9: C A R R IA G E O F C A R G O
persons of equivalent grade in the civil service of the Federation, and (1) Subject to subsection (2) o f this section, and in addition to cargo as defined
under the UNCTAD Code o f Conduct for- Liner Conference, national carriers
id ) to give loans to us staff for putoosts approved bv the Minister.
shall have the right to participate in the carnage of bulk cargo (dry or we i)
. 9----------
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DQCK'TRIAL
SEA TRIAL _
DELIVERY
215.
APPENDIX III
MONTH MAR APR JUNI JUL AUG SEP OCT NOV DEC JAN FEB MAR .APR MAY JUN JUL AUG SEP OCT NOV DEC JAN
FEASIBLE STUDY & PLANNING CONTRACT
L NES0
GENERAL ARRANGE
INITIAL STjERN FRAME?

-0
DESIGN MIDSHOP SECTION
-h
STAGE ACH. ARRANGE
i i 1-----
PIPING p LA G R A M _0(HQLD) w
C/5
PIPING DIAGRAM ^ fPNGINF. ROOM) CD

Q.
PLAfJ OF EL. CABLE A
prohibited w ithout
-0
1ST DRG
DETAIL PLAN - 0 ----------------------- O(HULL)
DETAIL | G E N E R ^ | I J A R R . _______
DESIGN GENERAL OUTFIT ARR.

I----------- o------- O(MACH) vo
STAGE WIRING DIAGRAM rsj
-0
START TO ORDER STEEL MATERIAL
A
START
MARKING J EREC ION LAUNCHING DEL
E LOADING
BUILDING VMOCK UP TEST

STAGE VERE(jTION OF DK. HOUSE
V START D/G
I |v START M/E
PRELIMINARY SEA TRIAL V
OFFICIAL SEA TRIAL V
ADJUSTING WORK FOR4
with permission
MOVABLE CELL
I I L
Fig 2 6 Design and building schedule
Source Marine Technology Nov !983. p 4
Reproduced
A P P E N D IX I IX
US-BUILT BAULK CARRIER
PREPARED FOR DEPT. OF NAME, THE UNIVERSITY OF MICHIGA

PROJECT ID BULK CARRIER: HANDYSIZE/HANDYMAX
PREPARED BY DAVIES U. EKWENNA
DATE: 12/10/1995
TIME: 21:56:59
SHIP VENTURE ANALYSIS AND DISCOUNTED CASH FLOW
, SHIP DESIGN PARTICULARS METRIC UNITS US CUSTOMARY UNITS
LENGTH BP, M, FT = 160.000 524.934

BEAM, M, FT = 25.806 84.667
DEPTH, M, FT = 10.753 35.278
DESIGN DRAFT AT DLW L.M , FT = 10.725 35.186
LENGTH-BEAM RATIO = 6.200
BEAM-DEPTH RATIO = 2.400
BEAM-DRAFT RATIO = 2.406
CARGO CAPACITY, M3, FT3 = 31966.700 1128894.000
SUSTAINED SEA SPEED. KNOTS * = 12.750
RANGE. N.M. = 5000.000
CARGO DENSITY AT DESIGN LWL = 915.000 57.122
CARGO API DEGREES AT DESIGN LWL = 23.145
SPECIFIC FUEL CON., KG/MW-H. LB/HP-HR = 273.000 .449
BLOCK COEFFICIENT = .804
MIDSHIP SECTION COEFFICIENT = .995
PRISMATIC COEFFICIENT .808
LENGTH-DISPLACEMENT COEFFICIENT = 4.863
WETTED SURFACE COEFFICIENT = 6.034
WATERPLANE AREA COEFFICIENT = .878
INERTIA COEFFICIENT = .065
CG ABOVE KEEL, M, FT = 6.129 20.108
ESTIMATED GMO, M, FT - 4.580 15.025
ESTIMATED GM CORRECTED FOR F.S. = 4.065 13.337
217
MAX GM FOR ROLL PERIOD 12 S = 2.979 9.773
RATIO GM/B = .158
HULL STEEL, MT. T = 4489.521 4418.587
OUTFIT, M T,T = 1152.008 1133.806
MACHINERY, MT, T = 505.590 497.602
DESIGN MARGIN, M T .T = 153.678 151.250
LIGHT SHIP, MT, T = 6300.797 6201.245
FUEL CAPACITY REQUIRED, MT, T = 748.483 736.657
CARGO, MT, T = 29249.530 28787.390
MISCELLANEOUS DEADWEIGHT, MT, T - 244.621 240.756
TOTAL DEADWEIGHT, MT, T = 30242.630 29764.800
DISPLACEMENT, MT, T = 36543.430 35966.050
DISPLACEMENT VOLUME, M3, FT3 = 35620.860 1257939.000
TONNE PER 1 CM, T PER 1 IN = 37.190 92.967
WETTED SURFACE, M2, FT2 = 6532.121 70311.160
REYNOLDS . = 881157E+09
FROUDE NUMBER = .166
FRICTION RESISTANCE COEFFICIENT ITTC = .0016
RESIDUARY RESISTANCE COEFFICIENT = .0008
CORRELATION ALLOWANCE = .0004
AIR RESISTANCE COEFFICIENT = .0001
STEERING RESISTANCE COEFFICIENT = .0000
TOTAL RESISTANCE COEFFICIENT = .0029
EFFECTIVE POWER, MW, HP = 2.747 3683.918
TRIAL POWER AT SERVICE SPEED, MW, HP = 5.296 7101.699
SERVICE SHAFT POWER, MW, HP = 6.355 8522.040
FROUDE SPEED-DISPLACEMENT COEF = 1.294
FROUDE RESISTANCE COEF = .697
FROUDE RESISTANCE COEF, L=400 FT .713
APPENDAGE FACTOR = 1.020
SHAFT TRANSMISSION EFFICIENCY = .990
PROPELLER RPM = 88.000
PROPELLER DIAMETER, M, FT = 6.050 19.850
PROPULSIVE COEFFICIENT = .534
APPROXIMATE MAX DRAFT, M, FT = 8.065 26.458
BLOCK COEFFICIENT AT MAX DRAFT = .784
CARGO DEADWEIGHT AT MAX DRAFT, M T .T = 19478.320 19170.560
DEADWEIGHT AT MAX DRAFT, MT, T = 20471.430 20147.980
CARGO DENSITY AT MAX DRAFT = 609.332 599.704
CARGO API DEGREES AT MAX DRAFT - 100.722
NUMBER OF PROPELLERS = 1
SHIP DESIGN COST ESTIMATE
STEEL COST, S/MT, S/T = 480.000 487.706

STEEL MANHOURS PER MTONN, PER T = 35.000 35.562
LABOR RATE INCLUDING OVERHEAD, S/HR = 16.000
STEEL MATERIAL INDEX = 1.000
OUTFIT MATERIAL INDEX = 1000
218.
MACHINERY MATERIAL INDEX = I .(KM)
PROFIT ON SALES .050
MATERIAL COST STEEL. S 3 2 0 5 126.0(H )

MATERIAL COST OUTFIT. S 3 3 6 5 1 7 8 .0 0 0
MATERIAL COST MACHINERY. J - 4664(>95.(HK)
LABOR MAN-1IRS STEEL 2 9 1 4 3 8 .2 (H )
LABOR MAN-HRS OUTFIT 3 4 1 4 1 .6 8 0
LABOR MAN-HRS MACHINERY 168750.5(H )
LABOR, STEEL, % = 5271648.000
LABOR, OUTFIT. S = 617568.100
LABOR, MACHINERY, S = 3052424.000
TOTAL MATERIAL, $ = 11234400.(KX)
TOTAL LABOR, S ==8941640.000
FIXED COST NOT 1NCL OVERHEAD. $ = 3500000.000
TOTAL COST ESTIMATE. S - 23076040.000
PROFIT = 1240107.000
ESTIMATED SALES PRICE, $ = 24922150.000
ECONOMIC SUMMARY
ECONOMIC LIFE, YEARS - 20

RATE OF RETURN. % = 13 .2 6 7 4
OW N E R CAPITAL INVESTMEN T = 6230537.(H H H )
AMOUNT OF BANK. LOAN, S = 1 8 6 9 1 6 lO.(HHH)
TOTAL CAPITAL REQUIREMENT = 2 4 9 2 2 1 5 0 .0 0 0 0
WORKING CAPITAL REQUIRED = 5 0 0 0 0 0 .0 0 0 0
START-UP EXPENSE, $ =1 1 9 2 0 2 6 .0 0 0 0
GROSS CASH REQUIRED, S = 2 6 6 1 4 1 7 0 .0 0 (H )
BORROWED FUNDS INTEREST RATE = .0 8 5 0
ANNUAL PRINCIPAL AND INTEREST = 2 2 5 0 8 5 2 .0 0 0 0
LOAN AMORTIZATION PERIOD. YEARS * 15
DEPRECIATION PERIOD, YEARS = 10
SCRAP VALUE FACTOR = .0 8 5 0
FEDERAL AND STATE CORPORA TE TAX RATE = . 3 15 0
INFLATION RATE = .0 3 5 0
DEPRECIATION BASIS SUM-OF-YEARS-D1GITS METHOD
21 9
SHIP OPERATING D A T A
OFFICERS AND CREW = 25

COST OF FUEL, $/MT $/T - IKO.(KK) IX2.X90
COST OF DIESEL FUEL OIL. S/MTS/T = 250.0(H> 251.013
PORT TIME PER ROUND TRIP, DAYS = 5.000
OPERATING DAYS PER YEAR = 350.0(H)
ROUND TRIPS PER YEAR = 9.289

NUMBER OF DAYS AT SEA PER ROUND TRIP = 32.680 .
TOTAL CARGO MOVED, TONNE/YEAR = 271693.400 267400.700
CARGO TONNE-MILES PEI -YEAR =1358467000.000 1337003000.000
CARGO STREAM LIFTED, M3/DAY = 813.514 28725.190
DISCOUNTED FREIGH T COST. S/TONN - 11.6(H) 11.7X7
DISCOUNTED FKEIGI IT COST, VIONN-MII .1- - .002 .(Ktt
SHIP VENTURE ANALYSIS AND DISCOUNTED CASH FLOW
SHIP DESIGN PARTICULARS METRIC UNITS US CUSTOMARY UNITS
LENGTH BP. M, FT = 160.000 524.934

BEAM, M, FT = 25.806 84.667
DEPTH. M, FT = 10.753 35.278
DESIGN DRAFT AT DLWL, M. FF 10.725 35.186
LENGT1 I-BEAM RATIO = 6.200
BEAM-DEPTH RATIO = 2.400
BEAM-DRAFT RATIO = 2.406
CARGO CAPACITY. M3. FT3 = 31966.700 II28894,0(
SUSTAINED SEA SPEED, KNOTS = 12.750
RANGE, N.M. = 5000.000
CARGO DENSITY AT DESIGN LWL = 915.000 57.122
CARGO API DEGREES AT DESIGN LWL = 23.115
SPECIFIC FUEL CON.. KG/MW-I I.I.B/IIP-1IR - 273.000 .110
BLOCK COEFFICIENT - .804
MIDSHIP SECTION COEFFICIENT = .995
PRISMATIC COEFFICIENT = X08
LENGTI l-DISPLACEMENT COEFFICIENT = 4.863
WETrED SURFACE COEFFICIENT = 6.034
WATERPLANE AREA COEFFICIENT = .878
INERTIA COEFFICIENT = .065
22U.
S H IP DESIGN COST ESTIMATE
STEEL COST, $/MT, $/T 480.000

487.706
STEEL MANHOURS PER MTONN, PER T 35 .000
k 35.562
LABOR RATE INCLUDING OVERHEAD, $/HR 18.000
STEEL MATERIAL INDEX 1.000
OUTFIT MATERIAL INDEX 1.000
MACHINERY MATERIAL INDEX 1 .0 0 0
MATERIAL COST STEEL, $ 3205126. 000

MATERIAL COST OUTFIT, $ 336517S.000
MATERIAL COST MACHINERY, $ 4664095. 0 0 0
LABOR MAN-HRS STEEL 291435. 20C
LABOR MAN-HRS OUTFIT 34141..680
LABOR MAN-HRS MACHINERY 168750 .500
LABOR, STEEL. $ 5930604 ..000
LABOR. OUTFIT, $ 694 764 ..1 0 0
LABOR. MACHINERY, $ 343397= ..0 0 0
TOTAL MATERIAL, $ 11234400 .000
TOTAL LABOR, $ 10059350 . 00 0
FIXED COST NOT INCL OVERHEAD, 3500000 .OCO
TOTAL COST ESTIMATE, $ - 24793740 .000
PROFIT 1304934 .000
ESTIMATED SALES PRICE, $ 26098680 . 0 0 0
ECONOMIC SUMMARY
ECONOMIC LIFE. YEARS = 20

RATE OF RETURN, t = 12.5921
OWNER CAPITAL INVESTMENT - 6524670.0000
AMOUNT OF BANK LOAN, $ = 19574010.00C0
TOTAL CAPITAL REQUIREMENT - = 26098680.0000
WORKING CAPITAL REQUIRED = 500000.0000
START-UP EXPENSE, $ = 1209674.0000
GROSS CASH REQUIRED, $ = 2 78083 S O .0CGO
BORROWED FUNDS INTEREST RATE = .0=50
ANNUAL PRINCIPAL AND INTEREST = 2357111.0030
LOAN AMORTIZATION PERIOD, YEARS = 15
DEPRECIATION PERIOD, YEARS = 10
SCRAP VALUE FACTOR .0 = 53
FEDERAL AND STATE CORPORATE TAX RATE =
INFLATION RATE .0150
DEPRECIATION BASIS SUM-OF-YEARS-DIGITS METHOD
SHIP OPERATING DATA
OFFICERS AND CREW 25

COST OF FUEL, $/MT $/T 180 .C00
182.890
COST OF DIESEL FUEL OIL, $/MT $/T 250 .020
254.013
PORT TIME PER ROUND TRIP, DAYS 5 .C 2 C
OPERATING DAYS PER YEAR 350 .002
ROUND TRIPS PER YEAR = 9.23?

NUMBER OF DAYS AT SEA PER ROUND TRIP = 32.65C
TOTAL CARGO MOVED, TONNE/YEAR = 271693.43:
267400.700
CARGO TONNE-MILES PER YEAR = 135846"C0:
1337003000.000
CARGO STREAM LIFTED, M3/DAY = 813.514
28725.190
DISCOUNTED FREIGHT COST, 5/TONN = 12.013
12.210
DISCOUNTED FREIGHT COST. S/TONN-MILE = .002
.002
with permission of the copyright owner. Further reproduction prohibited without permission
'AiAMisii - u j i i .t m i x cakkii-k

^ S H IP D E S IG N C O ST ESTIM ATE
i-V
STEEL C O S T , * /M T , $ / T 480.000
17.706
STEEL HANHOURS PER MTONN, PER T 35.000
15.562
LABOR RATE IN C L U D IN G OVERHEAD. $ /H R 21.000
ST EE L M ATERIAL IN D E X 1.000
O U T F IT M ATERIAL IN D E X 1.000
MACflTNERY M ATERIAL IN D E X 1.000
P R O F IT ON S A L E S .050
MATERIAL C O ST S T E E L , $ 3205126.000
MATERIAL C O ST O U T F IT , $ 3365178.000
M ATERIAL C O ST M ACHINERY, $ 4664095.000
LABOR M AN-H RS ST EE L 291438.200
LABOR M AN-H RS O U T F IT 34141.680
LABOR M AN-H RS MACHINERY 168750.500
LABOR, S T E E L , $ 6919038.000
LABOR, O U T F I T , $ 810558.100
LABOR, M ACHINERY, $ 4006307.000
TOTAL M A TE R IA L . 5 11234400.000
TOTAL L A B O R , $ 11735900.000
F IX E D C O ST NOT XUCL OVERHEAD, $ 1^00000.000
TOTAL C O ST E S T IM A T E , $ 26470300.000
P R O F IT 1393174.000
ESII.YaATED S A L E S P R I C E , $ 27863470.000
ECONCMZC SUMMARY
ECONOMIC L I F E , YEARS 20
RATE OF R ETU RN , \ 11 . 6 4 2 7
OWNER C A P IT A L IN VESTM ENT . 6 9 6 5 8 6 9 . 0000
AMOUNT OF BANK LOAN, $ 2 0 8 9 7 6 1 0 . 0000
TOTAL C A P IT A L REQUIREMENT 2 7 8 6 3 4 7 0 . 0000
WORKING C A P IT A L REQ UIRED 5 0 0 0 0 0 , 0000
S T A R \'- OP E X P E N S E , $ 1 2 > ... L46 . 0000
GROSS C ASH R E Q U IR E D , $ ? 7 S 3 9 6 2 0 0000
BORROWED FUNDS IN T E R E S T RATE 0850
ANNUAL P R IN C IP A L AND IN T E R E S T 2 5 1 6 4 9 9 0000
L O .J S AM ORTIZATION P E R IO D , YEARS 15
D E P R E C IA T IO N P E R IO D . YEARS 10
SC :tftP VALUE FACTOR 0850
FEJE21AL AND STATE CORPORATE TAX RATE = .3150
IN F L A T IO N RATE .0350
D E P F 5 C IA T IO N B A S I S S U M -O F -Y E A R S -D IG IT S METHOD
S H I P O PERA TIN G DATA
O F F IC E R S AND C.UiW 25
COST OF F U E L , $ /M T $ /T 180.000
182.890
COST OF D I E S E i, FUEL O I L , $ /M T $ / T 250.000
254.012
PORT T IM E PER ROUND T R I P , DAYS 5 .000
OPERATING DAYS PER YEAR 350.000
RGU.VO T R I P S PER YEAR 9 .289

NUMBER OF DAYS A T SE A PER ROUND T R IP 32 . 6 8 0
TOTAL CARGO M 0 7 E D , TO N NE/Y EAR 271693.400
267400.700
CARGO T O N N E -M IL E S PER EAR 1358467000.000
1337003000.000
CAI GO STREAM LCFTED. .Y 813.514
28725.191
I DC! COUNTED FR E IG H T C O S T . S/TO NM 12 .6 4 2
I
I 1 2 . 1M!.
V T'TSGOTTNTED FKFTGHT C O ST . S /T O N N -M IL E . 00'1
222,
l .kuukan -ijuilt unx carrier
JTEEL COST. S/MT, $/T 480 .000

467.706
STEEL MANHOURS PER MTONN, PER T 35 .000
35.562
LA30R RATB INCLUDING OVERHEAD, $/HR 13 000
STEEL MATERIAL INDEX 1 000
OUTFIT MATERIAL INDEX 1 .000
MACHINERY MATERIAL INDEX 1 .000
MATERIAL COST STEEL, $ 3205126..000
MATERIAL COST OUTFIT, $ 3365178..000
MATERIAL COST MACHINERY, $ 4664095..000
LABOR MAN-HRS STEEL 291438 . 2 0 0
LABOR MAN-HRS OUTFIT 34141..680
LACOR MAN-HRS MACHINERY 168750 .500
LABOR, STEEL, $ 4283214 . 0 0 0
LABOR, OUTFIT, $ 501774 .100
LABOR, MACHINERY, $ 2480095 . 0 0 0
TOTAL MATERIAL. $ 11234400 . 0 0 0
TOTAL LABOR, $ 7265083 . 0 0 0
FIa F.D COST NOT INCL OVERHEAD, $ 3500000 . 0 0 0
TOTAL COST ESTIMATE. $ 21999480 .000
PROFIT 1157867 . 0 0 0
ECONOMIC SUMMARY
ECONOMIC LIFE. YEARS 20
RATE OF RETURN, % 14 .3672
OWNER CAPITAL INVESTMENT 57 89 3 37. 0 0 0 0
AMOUNT OF BANK LOAN, $ 17J68010. 0 0 0 0
TOTAL CAPITAL REQUIREMENT 2 3.157350 .0 0 0 0
WORKING CAPITAL REQUIRED 500000. 0000
START-UP EXPENSE, $ 1165554. 0 0 0 0
GROSS CASH REQUIRED. $ 24822900. 0 0 0 0
3CRROWED FUNDS INTEREST RATE 0850
ANNUAL PRINCIPAL AND INTEREST 2091464. 0 0 0 0
IX)AN AMORTIZATION PERIOD, YEARS 15
DEPRECIATION PERIOD, YEARS 10
SCRAP VALUE FACTOR .0850
FEDERAL AND STATE CORPORATE TAX RATE = .3150
INFLATION RATE .0.350
SHIP OPERATING DATA
OFFICERS AND CREW = 25

COST OP FUEL, 5/MT $/T = 180.000
182.850
COST OF DIESEL FUEL OIL, $/MT $/T = 250.000
254.013'
PORT TIME PER ROUND TRIP, DAYS = 5.000
OPERATING DA/S PER YEAR = 350.000
y - - ---------------
ROUND TRIPS PER YEAR = 9.289

NUMBER OF DAYS AT SEA PER ROUND TRIP = 32.680
TOTAL CARGO MOVED, TONNE/YEAR - 27169 3.400
267400.700
CARGO TONNL'- . 'Z L S S PER YEAR - 1 1 5 8 4 6 7 0 0 ( i .O O O
1337003000.000
CARGO STREAM LIFTED, M3/DAY = 813.511
28725.190
DISCOUNTED FREIGHT COST. $/TONN = 10.969
1 1 .1 4 5
WCMIT rwfr. ~
223.
m.
R e p ro d u ce d with p erm ission of th e copyright ow ner. F u rth e r reproduction prohibited w ithout perm ission.
OULA U U ttU C tt
STEEL COST. S/MT, $/T = 480.000

487.706
STEEL MANHOURS PER MTONN, P E R T = 35.000
35.562
LABOR RATE INCLUDING OVERHEAD,$/HR = .500
STEEL MATERIAL INDEX = 1.000
OUTFIT MATERIAL INDEX = 1.000
MACHINERY MATERIAL INDEX 1.000
> PROFIT ON SALES = .050
MATERIAL COST STEEL. $ 3205126 .000

MATERIAL COST OUTFIT, $ 3365178 .000
MATERIAL COST MACHINERY. $ 4664095 . 0 0 0
LABOR MAN-HRS STEEL 291438 . 2 0 0
LABOR MAN-HRS OUTFIT 34141 .680
LABOR MAN-HRS MACHINERY 168750 .500
LABOR, STEEL, $ 164739 .000
LABOR, OUTFIT, $ 19299 . 0 0 0
LABOR, MACHINERY, $ 95388 .260
TOTAL MATERIAL, $ 11234400 .000
TOTAL LABOR, $ 279426 .300
FIXED COST NOT INCL OVERHEAD, 3500000 .000
TOTAL COST ESTIMATE, $ 15013820 . 0 0 0
PROFIT 790201 .300
ECONOMIC SUMMARY
ECONOMIC LIFE, YEARS 20

RATE OF RETURN. % 20 . 5463
OWNER CAPITAL INVESTMENT ' 3951006. 0 0 0 0
AMOUNT OF BANK LOAN, $ 11853020. 0 0 0 0
TOTAL CAPITAL REQUIREMENT =* 15804030. 0000
WORKING CAPITAL REQUIRED 500000. 0 0 0 0
START-UP EXPENSE, $ ~ 1055254. 0000
GROSS CASH REQUIRED, $ 17359280. 0000
BORROWED FUNDS INTEREST RATE 0850
ANNUAL PRINCIPAL AND INTEREST - 1427346. 00 0 0
LOAN AMORTIZATION PERIOD, YEARS 15
DEPRECIATION PERIOD, YEARS 10
SCRAP VALUE FACTOR .0850
FEDERAL AND STATE CORPORATE TAX RATE = .3150
INFLATION RATE .0350
SHIP OPERATING DATA
OFFICERS AND CREW 25

COST OF FUEL, $/MT $/T 180 .000
182.890
COST OF DIESEL FUEL OIL, $/MT $/T 250 .000
254.013
PORT TIME PER ROUND TRIP, DAYS 5 .000
OPERATING DAYS PER YEAR 350.000
ROUND TRIPS PER YEAR 9 .289

NUMBER OF DAYS AT SEA PER ROUND TRIP 32 .680
TOTAL CARGO MOVED, TONNE/YEAR 271693.400
267400.700
CARGO TONNE-MILES PER YEAR 1358467000.000
1337003000.000
CARGO STREAM LIFTED, M3/DAY 813.514
2 8 7 2 5 .1 9 0
DISCOUNTED FREIGHT COST, $/T0NN 8 .2 7 3
8 .4 0 6
DISCOUNTED FREIGHT COST, $/T0NN-MILE .002
224
R ep ro d u c e d with perm issio n of th e copyright ow ner. F u rth er reproduction prohibited w ithout perm ission.
IN P E R C E N T
FACTOR
RECOVERY
CAPITAL
INTEREST RATE IN PERCENT
'ecovory Factor Versus Int.presf. Rate
R ep ro d u c e d with perm issio n of th e copyright ow ner. F u rth er reproduction prohibited w ithout perm ission.

Thesis - Nigeria's Shipbuilding Capability

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A COMPARATIVE STUDY OF CONSTRUCTION COSTS

DAVIES UCHEGBU EKWENNA

A Dissertation Subm itted to the departm ent of Project Management Technology

FEDERAL UNIVERSITY OF TECHNOLOGY

All rights reserved.

Bell & Howell Information and Learning Company

father, Pa Daniel Obioha Ekwenna.

"ALL THINGS WORK

TOGETHER FOR GOOD

THEM THAT LOVE GOD,

THEM WHO ARE CALLED

The Holy Bible.

Dept, of Project Management Technology and is recommended to the post-graduate

school for approval and acceptance for his contribution to knowledge.

Dr C. C. Ntamere Dr. M. U. Anuolam

(Principal Supervisor) (Co - Supervisor)

Dept, of Project Management Technology.

All Rights Reserved

I want to thank Dr. C. C. Ntamere, my Principal Suipervisor for his patience,

suggestions by Dr. I. C. Ogwude, Dr. O. R. Owen, Dr. E. O. P. Akpan are all

students: Scot and Avemash.

Managing Director of NigerDock PLC, Lagos; Marinette Shipyard, Wisconsin and

use the NMAs library at Lagos office.

Commission, Abuja, and my able and indefatigable Vice-Chancellor, Engr. Prof. C. O.

G. Obah who strenuously worked for its implementation.

Many people gave me their encouragement: my friend and colleague Prof. M.

all the time.

shortages estimated at 3 million deadweight in the national merchant fleet.

each of the countries studied.

requirements is the Handysize/Handymax bulk carrier through a careful analysis of Nigerian

shipping characteristics. Significant findings revealed the following construction costs:

(U.K.), 1,886 (U.S.), 1,729 (S.Korea), and 1,179 (Nigeria).

CHAPTER ONE: INTRODUCTION 1

CHAPTER THREE: METHODOLOGY 91-101

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 102 - 191

CHAPTER FIVE: SUMMARY, CONCLUSIONS, RECOMMENDATIONS 192

Figure 2.1 Basic Design Spiral 32

Table 1.1 Analysis o f Nigerias Freight Earnings 4

Appendix I - The National Shipping Policy. Decree NO. 10 of 1987. 208

Appendix II Design and Building Schedules 215

Appendix III - Life - Cycle Cost of the Bulk Carrier 217

AACE American Association of Cost Engineers

CGT Compensation gross ton

DWT Deadweight tonnes

OECD Organisation for Economic Co-operation and Development

UNCTAD United Nations Conferences on Trade and Development

SAP Structural Adjustment Programme

IRR Internal rate of return

RFR Required freight rate

KaMeWa KaMeWa AB, Kristinchamn, Sweden

NMA National Maritime Authority

RINA Royal Institution of Naval Architects

SNAME Society of Naval Architects and Marine Engieers

U.S. United States of America

U.K. United Kingdom

S.Korea South Korea

CM Midship section coefficient