Ocean Carriers

3919 WordsMay 24, 201616 Pages
Financial Management What factors drive average daily spot hire rates? The average daily spot hire rates is determined by supply and demand. However, it is not entirely fluctuated with the economy. Since the shipping business could be customized by different requirement, such as market demand for across the global economy, the size of ship and the age of vessel, the number of current ships in service, expected number of ships to be commissioned and the performance of current or future ships to reduce required supply, these factors could derail the hire rate away from the demand curve of iron ore. As shown in the Table I, the correlation coefficient between iron ore vessel shipments and average spot rate from 1994 to 2000 is…show more content…
NPV increases as the life of ship increases. However, the incremental value keeps decreasing from 15 years to 25 years and closed to 0 at the age of 25. It is indicated that 25 years would be the optimal NPV of this project. Ocean Carriers should choose 25 years as their project life cycle. NPV in different project life cycle 4000000 3500000 US Dollar 3000000 2500000 2000000 NPV 1500000 Incremental 1000000 500000 0 13 15 17 19 21 23 25 27 Life 0f ship Figure II the NPV comparison between 15 years and 25 years in Hong Kong and U.S 365 366 365 365 365 366 365 365 365 366 365 365 365 366 365 365 365 366 365 365 365 366 365 365 365 days Hong Kong 25years E x p e c t ecd s t ( 1 % + o C a l e n d a r a i l y H i irn f l a t i o n D e Ye a r Ra te 3 %) days 2001 2002 2003

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