Advantages And Disadvantages Of Container Freight Swap Options

The purpose of this paper is to analyze the economic situation of the company Macedonian Shipping and give a recommendation whether the company should use the motor vessel Tashtego as a freight tender beween Dar-es-Salaam and Zanzibar in East Africa or as a tapioca ship between Balik Papan and Singapore in the East Indies.

For the total revenues for each vessel the freight rates for Tapioca and for manufactured goods are multiplied with the amount of tons that are moved from one harbour to the other.

Of the three forms of transportation, rail has the highest fixed costs, motor carriers the greatest variable costs, and air transport, the greatest variable costs of service and logistics optimization. Starting with rail, the cost structure has the highest fixed cost components, driven by infrastructure and terminal costs. Rail is therefore the most difficult to negotiate a lower transportation cost for, as the fixed costs form an inflexible pricing structure for retail service providers. The quality of rail service varies significantly across nations and regions as well, leading to greater variability in costs when a shipment moves across national and regional boundaries. Given the highly fixed cost structure of rail systems, there is significant room for improvement from an efficiency standpoint. The use of containerization is continually adding to greater efficiencies to this mode of transport (Jennings, Holcomb, 1996).

Since scenario 1 has a negative NPV, we recommend Ocean Carriers to not invest if there is a 35% tax rate in the US. In scenario 2, where the ship is built in HK with a 0% tax rate, then we recommend that Ocean Carrier invest in the ship. This analysis shows that working the ship at a 35% tax rate will not yield a profit on the investment even 25 years into the future, given the increasing costs of survey preparation and the diminishing number of days that the ship is actually able to make money and be commissioned.

G.G. Dess, G.T. Lumpkin, M.L. Taylor, A.A. Thompson, and A.J. Strickland III, Strategic Management (Boston, McGraw Hill, 2004) pp. 141-148.

Relationship between Charter rates and Ship Price: With one point increase in the Capesize ship index, there is a slight increase in the price of the ship by $0.007 mln. The Capesize ships took like a year to build, and are good for 25 years, after which they are demolished and sold for scrap. The economics of this “ship breaking” differed by ship size and type category. So higher this index, higher is the price of the ship.

We think that daily spot hire rate will likely decrease next year. There are two reasons. First, there are 63 new vessels scheduled for delivery in 2001 to increase the supply of vessel and only few old vessels need to be retired, while the demand will not increase because imports of iron ore and coal would remain stagnant over next two years. Second, exhibit 5 shows that avg. spot rate of 2000 was higher than the rate of previous years and avg. 3-yr charter rate. In addition, the market will seemingly go up after two years. Therefore, ship owners should hope to sign short-term contract through using lower daily spot hire rate rather than locking low daily high rate for a long period.

Baye, M.R., Prince, J.T. (2014). Managerial Economics and Business Strategy. New York, NY: McGraw-Hill Irwin

Analyze the derivatives market and determine the use of derivatives to efficiently manage investment risks in an investment portfolio.

Per the case, technological developments in ship construction play a role in capacity, as newer ships are bigger, faster, and more fuel efficient, increasing the overall shipping capacity of a fleet. Accordingly the long-term decline in daily hire rates makes sense because technology

Ocean Carriers Inc. was approached in January of 2001 with a contract proposal for the leasing of one of their ships for a term of 3 years beginning in 2003. Ocean Carriers currently has no ship to accommodate the customer. To commission the construction of a new vessel would take 2 years from start to completion. The average rate in the spot market is $22,000 per day. Ocean Carriers deployed a younger fleet than average carriers and generally earned a 15% premium over the average daily rate placing them in position to capitalize in strong economies. However, the industry is volatile and suseptable to extremes both low and high. Many ship owners sought to sign contracts with time charters in order to shield themselves from the swings

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 capesize dry bulk industry looks optimistic.

Sturdy, convenient to transport and relatively cheap – these are some of the factors that have made the conversion of shipping containers into modern living and working spaces an ever growing trend in some other countries. However, little is only known about this innovation in Cebu. The proponents of this research study the supply and demand of these shipping containers. As end users create demand for the containers from the contractors as a finished infrastructures, these contractors are also creating a demand of raw shipping containers from the shipping companies. And yet there are more of these containers than what the people demanded, making a huge gap between the abundant supply of shipping container and the demand for them. The researchers

Reefer box, as known as refrigerated container, is listed in the Hanjin’ potential products list. Since reefer boxes are limited and demand for it is escalated from EU to Asia, reefer boxes are promoted inbound in Asia to export boxes to Europe. As a result, Hanjin can maximize EQ-equipment turnover. Some ports in Europe, such as Felixtowe in Great Britain, have a surplus of reefer boxes, thus the company can adjust the rate higher in order to limit the trade into such area while surplus areas, such as Barcelona in Spain, are offered a reasonable low rate to give Asia-Europe service promotions. Afterwards, the company gets higher contribution margin derives from Europe-Asia trade. Another way Hanjin reinforces its core business globally is promoting “shipper owned container”, “SOC” for short, in the area where boxes are deficit to save on empty repositioning cost. In surplus areas, Hanjin tries to be flexible with its rates to clear out the boxes and send them to other areas with high demand. The rates can be adjusted from lower to higher accordingly. Hanjin Shipping, additionally, has a service diversification to Africa as NAF-North Africa-Asia, WAF-West Africa, EAF-East Africa, SAF-South Africa lines are added. Before cargos are

Every firm would love to invest in shipping industry due to large profits involved. However this would seem easy but practically it is lot more difficult and virtually impossible to establish in container line business. The problem pertains to large capital investments in form of vessel and container procurements and risk of operating vessels. Even if we take the examples of biggest companies