Stone Business
Essay by shiwo223 • November 10, 2016 • Case Study • 1,013 Words (5 Pages) • 1,112 Views
Ocean Carriers Solution
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Daily spot hire rates forecast
In order to forecast whether daily spot hire rates to increase or not next year, we need to do the supply and demand analysis.
As for the supply, the number of ships available equaled the number of vessels in service the previous year plus any new ships delivered minus any scrapings and sinkings. From Exhibit 3, we know that there will be 63 new capsize vessels delivered next year. Exhibit 2 shows that deadweight tons of capesize fleet on order for 2001 is far more than that of capsize fleet over 24 years (capesizes over 24 years may scrap next year), which means that the supply of capesizes will increase next year.
As for the demand, over 85% of the cargo carried by capesizes was iron and coal. Although Linn took an optimistic view of the long-term market demand for capesizes, she mentioned that the imports of iron ore and coal would probably remain stagnant over the next two years. From Exhibit 5, we also notice that worldwide iron ore vessel shipments are expected to decreased a little bit, from 440 to 436, with the fleet size increasing from 552 to 612. The expected figure implies the demand will be decrease a little bit.
With the increasing supply and decreasing demand, the daily spot rates are expected to decrease next year.
Daily Hire Rates Factors Analysis
We believe there are three main driving factors of daily hire rates: age, supply and demand.
- Age
The daily hire rate is higher when the age is lower, showing in the following graph.
[pic 2] | [pic 3] |
- Supply
Daily hire rates were determined by supply and demand of ocean carrier vessels. Under the market mechanism, the hire rates are determined by the equilibrium of demand of supply of ocean vessels.
Factors | Influence on supply | Influence on hire rates |
Age | The younger, the weaker | The younger, the lower |
New and efficient vessels | The more, the weaker | The more, the lower |
- Demand
The demand of ocean carrier vessels is determined by the global economy, especially the basic industries, iron ore and coal. The specific correlation is shown bellowing:
Factors | Influence on demand | Influence on hire rates |
Iron ore & coal production | The more, the stronger | The more, the higher |
Iron ore & coal demand | The stronger, the stronger | The stronger, the higher |
Trade pattern | The greater distance, the stronger | The greater distance, the higher |
Long-term prospects of the capesize dry bulk industry
The demand for dry bulk capsizes is demanded by the world economy, especially its basic industries, among which over 85% of the cargo carried by capsizes is iron ore an coal. Since world wide iron ore vessel shipments and charter rates have been very strongly associated historically, we can use the historical data to forecast future performance. According to the graph, we can easily conclude that the growth rate of iron ore vessel shipments and the growth rate of average three-year charter rate have a positive correlation. We have already known that the long-term market demand for capesizes has an optimistic view with Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years. Thus, the growth in iron ore vessel shipments may result in the growth of average three-year charter rate. However, as the average three-year charter rate is increasing because of the growth of iron ore vessel shipments, there will be more new comers in the capesize dry bulk Industry, and the competition will become more fierce. Hence, though the demand of capesize dry bulk is expected to be strong, we should not be too optimistic about the long-term prospects of the capesize dry bulk industry.
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