Ocean Carriers.docx

Ocean Carriers Report

1. What factors drive average daily hire rates? The factors that drive average daily hire rates are the age of vessels, market condition, the supply and demand and the size of the ships.

2. Do you expect daily spot hire rates to increase or decrease next year? I think the spot hire rates will decrease next year. Because there is a big number of vessels order for next year, according to exhibit 3.Compared to exhibit 2, it ’s a big proportion. So the supply will be large, leading the rates to decrease.

3. How would you characterize the long-term prospects of the capesize dry bulk industry? In the next few years, there will be a large supply of new capsize vessels. And also, there will be some vessels that are over 24 years and will be scrapped. But the old vessels just total a small portion. So the influence that brought by the old vessel s’ scrap is minor. Another point is, if Australia and India ore export is going well in the next few years, it would be very good for this industry and make the hire rates decrease.

4. Should Ms. Linn purchase the $39 million capsize? Make two different assumptions. First, assume that Ocean Carriers is a U.S. firm subject to 37% taxation. Second, assume that Ocean Carriers is located in Hong Kong, wh ere owners of Hong Kong ships are not required to pay any tax on profits made overseas and are also exempted from  paying any tax on profit made on cargo uplifted uplifted from Hong Kong. See the chart attached. The Hong Kong plan seems to be better than the US plan because of absence of tax.

5. What do you think of the company’s policy of not operating ships over 15 years old? It’s not good. According to my calculation, the 15 years ’ plan will generate negative NPV on both 37% tax and 0 tax occasions. So it ’s not good. And the 25 years plan can generate positive NPV.