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    Case Ocean Carriers

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    Morsal Sarwarzadeh
    Ocean Carriers analyzed the capesize dry bulk industry. They expect daily spot hire rates to decrease over the next two years due to falling iron ore shipments and increases in the capesize fleet. However, from 2003 onward, hire rates are expected to increase due to rising iron ore exports from Australia and India. The main factors that influence average daily hire rates are the world economy, trade patterns, and vessel age. For long-term prospects, iron ore shipments are projected to increase 1.5-2% annually over 25 years. It would also be advantageous for Ocean Carriers to purchase a $39M capesize vessel and operate from Hong Kong due to tax benefits. The company policy to not operate

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    Case Ocean Carriers

    Uploaded by

    Morsal Sarwarzadeh
    110 views2 pages
    Ocean Carriers analyzed the capesize dry bulk industry. They expect daily spot hire rates to decrease over the next two years due to falling iron ore shipments and increases in the capesize fleet. However, from 2003 onward, hire rates are expected to increase due to rising iron ore exports from Australia and India. The main factors that influence average daily hire rates are the world economy, trade patterns, and vessel age. For long-term prospects, iron ore shipments are projected to increase 1.5-2% annually over 25 years. It would also be advantageous for Ocean Carriers to purchase a $39M capesize vessel and operate from Hong Kong due to tax benefits. The company policy to not operate

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    Corporate Finance Case: Ocean Carriers

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    Ocean Carriers analyzed the capesize dry bulk industry. They expect daily spot hire rates to decrease over the next two years due to falling iron ore shipments and increases in the capesize fleet. However, from 2003 onward, hire rates are expected to increase due to rising iron ore exports from Australia and India. The main factors that influence average daily hire rates are the world economy, trade patterns, and vessel age. For long-term prospects, iron ore shipments are projected to increase 1.5-2% annually over 25 years. It would also be advantageous for Ocean Carriers to purchase a $39M capesize vessel and operate from Hong Kong due to tax benefits. The company policy to not operate

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    110 views2 pages

    Case Ocean Carriers

    Uploaded by

    Morsal Sarwarzadeh
    Ocean Carriers analyzed the capesize dry bulk industry. They expect daily spot hire rates to decrease over the next two years due to falling iron ore shipments and increases in the capesize fleet. However, from 2003 onward, hire rates are expected to increase due to rising iron ore exports from Australia and India. The main factors that influence average daily hire rates are the world economy, trade patterns, and vessel age. For long-term prospects, iron ore shipments are projected to increase 1.5-2% annually over 25 years. It would also be advantageous for Ocean Carriers to purchase a $39M capesize vessel and operate from Hong Kong due to tax benefits. The company policy to not operate

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    Corporate Finance 3.

    2
    Case 1: Ocean Carriers
    For these case studies, our team (goup 22) made an analysis of the
    capesize fleet. We are discussing the trend of the daily spot hire rates,
    which factors drive the average daily hire rates, the characteristics of the
    long-term prospects of the capesize dry bulk industry, if the purchase of
    the $39M capesize should be done, and eventually we discuss the
    companys policy of not operating ships over fifteen years old.
    As concerned the daily spot hire rates, we expect the daily spot hire rates
    will decrease the next two years. This decrease is caused by falling growth
    rates for iron ore shipments and imports of iron ore. It is also expected that
    the worldwide capesize fleet will increase, due the number of expected
    deliveries and the age of the young fleet. From 2003 on, we expect the
    daily spot hire rates to increase, caused by an increasing growth from the
    iron ore exports in Australia and India. These rising exports will increase
    trading volumes, which increases prices.
    Several factors drive average daily hire rates. We consider three main
    factors influencing the average daily hire rates: the world economy, trade
    patterns and the age of a vessel. First, the world economy influences the
    rates by supply and demand. When the world economy grows, production
    and demand for iron ore will increase, which increases trading volumes
    and increasing prices, as we discussed earlier. These increasing prices
    then will increase daily hire rates. Secondly, the age of a vessel will
    influence the daily hire rate too. Partly due to technological innovation,
    manufacturing companies keep succeeding in manufacturing newer, faster
    and bigger vessels. Due to increasing R&D and manufacturing costs, these
    vessels require higher hire rates, to keep the business profitable. At last,
    trade patterns (i.e. importing and exporting countries) influence the daily
    hire rates too. As discussed earlier, growing exports from iron ore in
    Australia and India leads to growing demand over supply, which increases
    the daily hire rates.
    For the long-term prospects of the capesize dry bulk industry we expect
    this industry will see a long term growth. In a period of 25 years, it is
    expected that iron ore shipments will increase each year. The first two
    years show a growth rate of 2%, after that the next years show a growth
    rate of 1,5%. The average daily charter rate will increase too.
    Besides that, Ms Linn is considering purchasing a $39M capesize. Ocean
    Carriers is a US firm subject to 35% taxation, and is it located in Hong
    Kong, where owners of Hong Kong ships are not required to pay any tax on
    profits made overseas and are also exempted from paying any tax on
    profit made on cargo uplifted from Hong Kong. It would be a good
    opportunity doing such an investment, because of tax advantages
    operating overseas.

    Finally, the company is following a policy of not operating ships over


    fifteen years old. We consider this policy a good policy, while ships with a
    higher age, will lead to higher repair and maintenance costs, which
    negatively affects profitability. A higher age of a ship thus leads to lower
    profitability of the companys operations. Ocean Carriers should, in our
    opinion, continue with this policy.

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