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Alex Oliveira
Ocean Carriers
October 23, 2008
Ocean Carriers: New Vessel Case
This case involves a shipping company that is in a situation where, to maintain an existing client, they must decide on whether to order a new, larger, stronger vessel for its current fleet or run the chance of losing this business opportunity. What makes this a very difficult decision to make are the various unknown factor surrounding the case, and ultimately if it is going to be profitable for Ocean Carriers (OC). Since the “charterer” is repeat customer, I assume Ocean Carrier will make everything they can to make this happen. But before we can make an educated decision we need to look at the various factors surrounding this case.
The “Charterer” has offered to sign a three year contract with OC to start in 2003, where they would pay them a rate of $20,000 per day with annual escalation of $200 per year thereafter. This amount multiplied by 366 days in a year will give us the total annual sales figure for our analysis. These first cashflows for three years are very safe due to OC previous history of working with the “Charterer”. In our analysis we are also assuming that this $39 million vessel will be in operation for 15 years and will have a salvage value of $5 million to OC. After the contract is over with the “Charterer” in 2005, our forecasted daily charter rate table shows us that a 3 year old ship has an expected daily hire rate of $20,400. But the way I arrived at the new daily rates was by also adding a premium of 15% to 0% from 2006 until 2018. This premium is ...