The majority tot the fleet is tartly young, and it looks as though an additional 63 vessels are on the books to be ordered in 2001, Therefore, it is more likely that the supply will go up. Demand for dry bulk capsizes is based on the world economy, specifically for the industries involved. Given that there is not a significant growth in the worldwide and in the relative industry: we predict that the demand of shipping capacity is more likely to stagnant.Also, as is shown in the article, Line anticipated that the exports of iron ore and coal are not likely to take off until 2003, which give us a view that the imports of iron ore and coal old remain constant over the next two years. Since that 85% of the cargo carried by the ship is iron and coal, we are able to conclude that the demand will stay at a similar level of 2000. Based on the supply and demand outlook, we can assume that the hire rate for capsizes Will most likely decrease, While the supply of shipping capacity is likely to increase and demand will be stagnate.
As mentioned above, the daily hire rates are influenced and determined by the supply and demand. The number of ships available is determined using the current number of vessels, the amount added to the fleet, and the scrapings. According to the article, when the market demand for shipping capacity was high, the owners would keep a vessel in operation as long as possible. In the reverse, when demand was low, scrapping rose, Supply was also influenced by the size and efficiency of the newer ships.As the ships got bigger and more efficient, fewer ships were needed to carry the saran amount of cargo. As far at the demand goes tort capsizes, analysts look primarily at the world economy. When the economy is booming, most likely production and demand for iron ore and coal will increase.
Also, changes in trade patterns affect the demand. For example, if the distance between the supply and the destination increased for iron ore, demand for capsizes would also increase. Finally, operating costs can also influence the daily hire rate.Costs for these capsizes are around $4,000 per day, and are expected to increase to 1% above inflation. If for some reason, operating costs were to become much higher than expected, Ocean Carries should take this into consideration when determining the daily hire rate.
The factors above are What help influence the daily hire rates, and although they are not conclusive and completely reliable, they will guide the decision making recess. 3. The long-term prospects for the capsize dry bulk industry is based on the market conditions and demand.It is also based on technology and improvements in efficiency, which will affect the number of dry bulk capsizes required.
Over 85% of the cargo on these capsizes are iron ore and coal, and demand for these products increases in a strong economy. The long-term forecast for iron ore shipments indicates an annual growth rate of 2% from 2002 to 2005. After 2005, the growth rate will drop too 1. 5% rate, indefinitely. There will likely be higher trading volumes after 2003 with the start of the Australian ND Indian ore exports.Therefore, because tot the large trading volume tot iron ore and industry conditions, the capsize dry bulk industry looks good for the long-term. In terms of profitability of the capsize industry in the long-term, we believe that profitability will continue to thrive, As technology is constantly working to improve the ships in terms of efficiency, fewer ships are required to carry the same amount of cargo, Also, with further innovation, costs to build ships will eventually decrease and profits will increase.
Overall, the long- term prospect of the capsize dry bulk industry looks optimistic. . Based on the information provided in the case, our group calculated the NP for the project under both tax environment and tax-free condition, respectively, by using the excel spreadsheet and the NP function. (For a detailed calculation Of NP, please refer to Appendix Under 15-yr. )According to our calculation, we have the following results: In the first case scenario, which the firm is in a tax environment (35% income tax), the NP Of the project equals to Under the second case scenario. Which the firm is in a tax-free environment, the NP equals to -$834,638. 6 According to the NP rule, Line should not take up the project, because the NP of the project is negative for both these two scenarios.
5. From the firm’s point of view, the policy of not operating ships over 15 years old is designed to protect against uncertainty and to pursue a higher premium over the market by having more relatively young vessels rather than old ships.However, based on our calculation of the NP of the project, under the assumption that the company will continue to operate the ships until the 25 years of service, the results shows that the NP is better when compared to the ease that not operating ships over 15 years and the firm should take the project under the tax-free environment since the NP turns out to be positive in that scenario.For a detailed calculation of NP, please refer to Appendix under 25- turns out that the firm’s policy is not effective and is not a good investment policy because the firm will lose the opportunity to take advantage from the ROI in the later years of the ships due the restrictive policy The result indicates that it will bring the firm greater benefit if the company chooses to operate the ships for a longer period.