Ocean Carriers Case Solutions

Published: 2021-09-10 11:55:09
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Report for Case #1: Ocean CarriersGroup A2: YANG Sixuan, XIE Yu, HUANG Yan, JIN JianOcean Carriers is a shipping company that has offices both in New York and Hong Kong and provides capesize dry bulk carriers lease service mainly carried iron ore worldwide. Mostly focused on time charter market instead of spot hire market, its revenue is based on the daily hire rates, especially time charter rate.   1. Do you expect daily spot hire rates to increase or decrease next year (2002)?We assume that in 2001 and 2002, iron ore vessel shipments predicted in Exhibit 5 is reasonable and scrapping rate remain the same as the previous year. We estimate spot hire rate in 2001 based on the iron ore vessel shipments and spot rate in 2002 based on both iron ore vessel shipments and fleet size. (Because we can not calculate the scrapping rate in 2001). Because worldwide iron ore vessel shipments and charter rates had been very strongly associated historically. From 1994 to 2000, when the number of iron ore vessel shipments goes up, charter rate also goes up, which means positively association. What’s more, spot hire and 3-year charter rate are positively correlated. Therefore, spot rate and iron ore vessel shipments move in the same direction every year. From 2000 to 2001, iron ore vessel shipment is estimated to decline, so spot hire rate will also decrease.We estimate spot hire rate in 2002 based on iron ore vessel shipments and fleet size. According to Exhibit 5, in 2001, we predict that 436 million of deadweight tons of iron ore would need shipping and in 2002 the number will increase to 445 million and the fleet size in 2001 will be 612. The number of new vessels delivered in 2001 will be 63, but the fleet size worldwide only increase 60 vessels. It means that Exhibit 5 predicts that there would be 3 vessels scrapped, sank or not delivered successfully. So 60/63=Δ2001-2002/33, then solve Δ2001-2002, which equals to 31. Thus in 2002, we estimate iron ore shipment to be 612+31=643. Then we calculate the growth rate of iron ore vessel shipments and fleet size in 2001-2002. Because the iron ore vessel shipments (supply) of 5.14% is higher than the fleet size (demand) of 2.06%, which means supply grows faster than demand. Thus daily spot hire rates will decrease.199920002001E2002EIron ore vessel shipments (millions of deadweight tons)410440436445Growth rate-0.91%2.06%Fleet size (number of vessels)523552612643Growth rate10.87%5.14%Number of new vessels delivered6333Source: Ocean Carriers, Exhibit 3, 5, 6

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