Ocean Carriers Case Study Harvard Case Solution & Analysis


Ocean Carriers Inc. is a shipping company with offices in New York and Hong Kong. The company operates in capesize business, and it mostly transportsiron ore and coal worldwide. The company’s capesize were too large and were restricted to transit the Panama Canal and the Suez Canal. The company earnsits major revenues by renting out the capesize on time charter for more than ayear.
The case is based on evaluating the proposal for a customer who intends to use a capesize with specific requirements.This type of cargo ship was not available in the Ocean Carrier’s fleet. The manufacturing of the Capesize would take two years according to the industry practices. The customer is eager on finalizing the contract at very attractive terms and Mary Linn the vice president of finance for the company has to appraise the contract if it is feasible for the company.
In order to make analysis and appropriate solution to the company, following questions should be answered:
Do you expect daily spot hire rates to increase or decrease next year?
Daily hire rate is determined by the supply and demand of shipping capacity proposed by the company. It has been shown in the case that 2 million of deadweight tons are 24years old. Moreover, these weights would be scrapped in near future.
The examination of supply and demand depicts that daily hire spot rates would be declining in 2001. It has been expected that 63 new vessels would be delivered. 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. In addition, if demand would be increasing, it would also affect price and thus, it would also increase. Consequently, there would be no significant change in price as the demand would remain same.
Ocean Carriers Case Study Harvard Case Solution & Analysis

What factors drive average daily hire rates?
The average hire rates on daily basis are determined through the demand and supply taking place in the industry. Under the head of supply, following factors are contributing:
1. Fleet size
2. Number of scrapped vessels
3. Number of new vessels
4. Efficiency of vessels.
The demand of following items contribute to determine average daily hire rates:
1. Shipment of Iron ore
2. Shipment of Vessels
3. Economy of world
4. Trade patterns followed by the country.
How would you characterize the long-term prospects of the Capsize dry bulk industry?
The long term prospects of the dry bulk industry would be characterized by the following points:
1. Ore production in Australia is increasing and is expected to be stronger.
2. On the other hand, the Indian production of Ore is expected to be absent for the few time and would be taking off for next years.
3. In 2003, Australian and Indian exports would begin. As a result, trading volumes would be increasing due to development of new supplies.
4. Lastly, due to higher trade volume and boosting prices, it is expected that demand of capsizes would also be increasing...........

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