Ocean Career Case Study

1. Do you expect daily spot hire rates to increase or decrease next year?

According to the case, the daily hire rate is mainly determined by supply and demand of the vessels. In term of supply, as stated in the case, 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. Since there had been very few scrappings in recent years. As a result, we could make a reasonable assumption that the same trend will remain at least in next few years. In addition, according to the exhibit 3 provided by the case, there are additional 63 vessels (with 11 million of deadweight tons) that will be delivered in 2001, indicating that the supplies of overall capesizes will increase with a high probability.  

In term of demand, over 85% of the cargo carried by capsizes was iron ore and coal, meaning that any changes in demand of these two goods would have the same impact on the demand of capsizes vessels. As estimated by Linn, the imports of iron ore and coal would probably remain stagnant over the next two years, this will in turn indicate that the demand for capesize vessels will probably remain stable as well in recent years.

In conclusion, given that the supply is likely to increase and the demand of capesize vessels is likely to remain the same level as previous year, the daily spot hire rate will possibly decrease next year.

2. What factors drive daily hire rates?

As analyzed in previous question, daily hire rates are affected by the supply and demand of capesizes. The factors that will have impact on the demand of capesizes include demand of iron ore and coal shipment; the world economy (The better the world economy condition, the bigger the demand); and changes in trade patterns, namely changing in supply of iron ore from the United States to Australia (Higher demand if European buyers purchase from Australia since the longer distance to Europe).

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