Ocean carriers case. Ocean Carriers case opportunities.alumdev.columbia.edu 2022-10-19
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Ocean Carrier Case Solutions Essay Example
Mike McCarty, owner of Silver Ships. Often history is provided in the case not only to provide a background to the problem but also provide the scope of the solution that you can write for the case study. On the other hand, 15-year policy is only reasonable because of excessive maintenance costs, preventing discounts on ships because of their age and efficiency of the newly bought ships. In this case, scenario 1 produces the highest net present value and so president Mary Linnehan should choose to build the new capesize. . The supply for the next year can be forecasted by adding the number of vessels that are currently operation to the number of vessels estimated to be produced during the year, and subtracting the number of vessels that are expected to be scrapped.
Ocean Carriers Case Study Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies
The first step in our analysis is to develop a regression model that explains daily charter rates as a function of time and other factors. We also control for whether or not there is a vessel oversupply or undersupply in the market as well as for the size of the vessel. . Moreover, it has also been estimated that iron ore and coal would remain stagnant over the next two years and the demand would only be generated by imports. We include dummy variables for the winter and summer months as well as for whether or not the market is in an upswing or downswing.
Ocean Carriers Case Study Solution and Case Analysis
If for some reason, operating costs were to become much higher than expected, Ocean Carries should take this into consideration when determining the daily hire rate. Number of scrapped vessels 3. In order to do this our team used the provided expected daily hire rates to calculate revenue which we expect to be for the lifetime of this vessel. Do you expect daily spot hire rates to increase or decrease next year? The vice president of finance for Ocean Carriers was also interested in looking at the corporate policy of scrapping a vessel after 15 years, even though such vessels have a product life of 25 years. So considering in the long run, Linn had to decide whether Ocean Carriers should immediately commission a new ship which could be completed in two years. As a company policy they are not operating vessels older than 15 years. The customer offers an attractive price for the hire, but the contract is only limited to three years.
The depreciation of the new ship is another important factor to consider. Consequently, the spot hire rate rates can be expected to decrease during the next year. If taxes are present, the tax shield provided by depreciation is added back to the cash flows. This could give the company a competitive advantage over its rivals. So the supply will be large, leading the rates to decrease.
Ocean Carriers [10 Steps] Case Study Analysis & Solution
Although Ocean Carriers intend to only use the vessel for 15 years, the ship does have a working life of 25 years. Once we have our regression model, we use it to forecast charter rates for the next ten years. The age of ships, market situation, supply and demand, and vessel size are the driving forces behind average daily hire rates. As a result, trading volumes would be increasing due to development of new supplies. The revenues for the first three years are easier to estimate if it is believed that the customer will abide by its three-year contract. Readability F 51% Daily spot hire rates are determined according to supply and demand of the shipping capacity.
SUMMARY OF FACTS It is a dry bulk carrying industry, which ships iron and coal. . Demand: The demand for dry bulk capesizes was determined by the world economy, especially its basic industries. We have analyzed whether or not Ocean Carriers should make this investment using Free Cash Flow and Net Present Value NPV analysis. Our results indicate that these factors are all significant in predicting daily charter rates. The decision depends on many factors, including tax implications, depreciation, and the supply and demand for capesize vessels.
Download Ocean Carriers Case Study Analysis PDF, Excel by Robert Lee
Therefore, the company should decide against the capesize. In the absence of taxes, the effects of depreciation are ignored. The net addition to the existing fleet worked out to 8,161 Table 1. To conclude, 15-year policy of the company should be revised as well in order to decide whether it is profitable or not. For example you can recommend a low cost strategy but the company core competency is design differentiation.
Ocean Carriers case opportunities.alumdev.columbia.edu
Over 85% of the cargo on these capesizes are iron ore and coal, and demand for these products increases in a strong economy. The company operates in capesize business, and it mostly transportsiron ore and coal worldwide. Implementation framework helps in weeding out non actionable recommendations, resulting in awesome Ocean Carriers case study solution. Therefore, Ocean Carriers should choose to operate the new ship in Japan. No ship in Ocean Carrier's current fleet met the customer's requirements.
The factors above are what help influence the daily hire rates, and although they are not conclusive and completely reliable, they will guide the decision making process. Take a small break, grab a cup of coffee or whatever you like, go for a walk or just shoot some hoops. When the demand for these products is booming, also the demand for shipments rises. Also; with regard to the long-term profits of the industry, the NPV evaluations show that Ocean Carriers needs to revise their 15 years of operating policy. The negative net present value implies that the present value of the future cash flows is insufficient to cover the cost of building the vessel.
