RSS

Marine Transport and Economics

26 Nov

QUESTION 1

  1. a) Identify four  key  factors  which  in  your  opinion  will  influence  shipping industry in the future.  Discuss these factors with particular emphasis on the reasons of your choice and the effects they will have on shipping.

[12 MARKS]

  1. b) Discuss the factors affecting shipping demand and the ways in which the shipping supply can be modified in response to the changes in dema

[8 MARKS] QUESTION 2

 

  1. a) Explain indifference curves and illustrate the relationship between these and budget lines by using gra Show how the situation changes when the price of one of the goods or services in question changes.

 

[8 MARKS]

 

  1. b) Comment on the statement that the demand for shipping is inelastic in the short term but the elasticity increases in the longer ter

 

[4 MARKS]

 

  1. c) A ship owner wants to borrow £50 million to finance a new ship. The bank offers to lend that amount at 8% interest payable over 10 year

 

–     What are the equal annual payment?

 

–      Due  to  cash  flow  problems  the  owner  considers  postponing  the  first payment until the end of the fourth year at which time a lump sum equal to the four annual payments will be paid, and then paying off the outstanding sum during the next 6 years.  The banker offers to allow the debt  to  build  up  at  9%  for  the  four  years  and  then  collect  larger repayments during the final 6 years.  How big will the annual payments be in years 5 to 10?

 

[8 MARKS]

 

 

QUESTION 3

 

 

 

  1. a) A shipping  company  has  a  15-year  old  25,000dwt  bulk  carrier,  and  is considering replacing it with a new building.  Explain the way in which the cost and revenue performance of a new vessel might differ from that of the old ship under the following headings:

 

 

 

– operating costs

 

– voyage costs

 

– capital costs

 

 

[8 MARKS]

 

  1. b) A company is considering purchase of an offshore vessel at a cost of £60 million. They are hoping to finance it 60% with own equity and 40% with a bank loan of 5% annual interest to be repaid in equal annual repayments over

10 years from year 1.

 

The annual operating cost of the vessel is estimated to be £10.0 million, and the ship is to be rented out on a daily charge basis.  If the company is to get a before-tax (annual) rate of return of at least 15%, what minimum daily rental charge of the vessel do they have to set?  Assume that the economic life of the ship is 25 years with negligible resale value, and, under normal circumstances, the ship is expected to be hired on average 280 days in any one year.

 

If the company wishes to get the whole investment recovered by the end of year 11, what is the daily rental charge?

 

 

 

[12 MARKS]

 

QUESTION 4

 

 

 

  1. a) Factors that are considered to be significant in the structure of the charter markets include: mobility; ease of entry; lack of coherence; and, homogeneity. Explain the importance of these four factors in the structure of the charter markets and provide their similarities or differences in the tanker and dry bulk marke

 

[10 MARKS]

 

 

 

 

 

  1. b) Operating speed of a ship can be optimised either to maximise the profit per ton carried or to maximise the daily prof Explain the ideas, highlighting the key differences between them, and discuss their strengths and weaknesses.

 

Illustrate  the  way  in  which  the  fuel  cost  variation  influences  the  speed optimisation.

 

[10 MARKS]

 

 

 

 

 

QUESTION 5

 

  1. a) Three of the key measures of merit used in shipping are i) net present value
  2. ii) yield

 

iii)       required freight rate.

 

Explain how these measures are obtained.  Briefly discuss their strengths and weaknesses, highlighting how some of the limitations can be overcome.  Some people mistrust the values produced for these measures.  Express your opinion on this point and explain the reasons.

 

[10 MARKS]

 

  1. b) A shipping company is considering purchase of an offshore vessel at a cost of

£50 million.  They are hoping to finance 50% of its cost with a bank loan of 5%

interest to be repaid in equal annual repayments over 10 years from year 3.

The interest accrued in the first two years will be added to the loan. The rest of the cost is to be met from the company’s own reserve.

 

The annual operating cost of the vessel is estimated to be £5 million, and the ship is to be rented out on a daily charge basis.  If the company is to get a (annual) rate of return of at least 10%, what minimum daily rental charge of the vessel do they have to set?  Assume that the economic life of the ship is 20 years, and, under normal circumstances, the ship is expected to be hired on average 280 days in any one year.

 

 

[10 MARKS]

 

 

 

QUESTION 6

 

  1. a) Operating speed of a ship can be optimised either to minimise the cost per ton carried or maximise the profit per day. Explain the ideas, highlighting the key differences between them (use diagrams if necessary), and discuss their strengths and weaknesses.

 

Based on the above, show how the total costs per tonne changes with the variation in fuel costs.   Illustrate the way in which the fuel cost variation influences the speed optimisation.

.

[10 MARKS]

 

 

 

  1. b) A ship owner wants to borrow £80 million to finance a new ship.  The bank offers to lend that amount at 8% interest payable over 8 years from year 3 to year 10.

 

  1. i) What are the equal annual payments?

 

  1. ii) Just before making the payment at the end of year 6 the owner gets an offer from another lender of a loan at 6% interest payable over four yea  If there is no penalty to pay for an early redemption of the original loan, how much does the owner have to borrow from the new lender to pay off the first loan?

 

iii)       How big will the annual payments be, and why is it that this is greater than the original annual payment?

 

[10 MARKS]

QUESTION 7

 

 

(a)       Identify the four categories of ships’ operating costs, as normally classified.

What cost elements fall under each of these categories?

 

[5 MARKS]

(b)       For the cases of single trip (voyage) charter, time charter and bareboat charter,

determine whose responsibility (either the owner’s or the charterer’s) it is to

cover the various operating cost elements.

[5 MARKS]

(c)       Factors that are considered to be significant in the structure of the charter

markets include mobility, ease of entry, lack of coherence and homogeneity. Explain the importance of these four factors in the   structure   of   the   charter markets and briefly discuss their similarities and/or  differences  in  the  tanker and dry bulk markets.

[10 MARKS]

 

 

 

 

 

QUESTION 8

 

 

Are the following arguments TRUE or FALSE? Provide short justifications for your  answer.  You may use  graphical  or diagrammatic illustrations,  where advantageous.

 

(a) The lower, left-hand side part of the tanker supply curve includes small and aged vessels.

 

 

(b) Spot rates fall when new tankers enter the market.

 

(c) Conferences collectively respond to external competition. (d) Costs in the liner market are almost constant.

 

 

 

9. (a) Explain the indifference curves of two substitutable goods and illustrate the
 
relationship between these and budget lines by using graphs.   Show what
changes and how, when the price of one of the goods or services in question
alters.

(8)

 

 

 

(b)        Comment on the statement that the demand for shipping is inelastic in the short term but that the elasticity increases in the longer term.

(4)

 

(c)        A ship owner wants to borrow £80 million to finance a new ship.  The bank offers to lend that amount at 6% interest payable over 10-year period.

 

 

–          What is the equal annual payment?

 

–           Due to cashflow problems the owner considers postponing the first payment until the third year. The banker offers to allow the debt to build  up  at  8%  for  the  first  two  years  and  then  collect  larger repayments during the final 8 years.

 

How big will the annual payments be?

 

By how much is the borrower disadvantaged through this arrangement compared to the original one, if his/her expected annual rate of return for the investment is 10%.

 

(8)

  1. (a)  The operating speed of a ship may be optimised either to maximise the profit per ton carried or maximise the daily profit.  Explain these two approaches, highlighting the key differences between them, and discuss their particular strengths and weaknesses. Use graph sketches to illustrate your ideas.

(8)

(b)        A company is considering the purchase of an offshore vessel at a cost of £40 million.  They are hoping to finance it 50% with their own resources and 50% with a bank loan of 5% annual interest to be repaid in equal annual repayments over 10 years from the end of year 3.

 

The annual operating cost of the vessel is estimated to be £3.0 million, and the ship is to be rented out on a daily charge basis.  If the company is to get an (annual) rate of return of at least 20%, what minimum daily rental charge of the vessel do they have to set?  Assume that the economic life of the ship is 20 years, and, under normal circumstances, the ship is expected to be hired, on average, 280 days in any one year.

(12) Contd./…

 

  1. (a)       Identify the four categories of ships’ operating costs, as normally classified.

What cost elements fall under each of these categories?

 

 

(5)

 

 

(b)        For the cases of single trip (voyage) charter, time charter and bareboat charter, determine whose responsibility (either the owner’s or the charterer’s) it is to cover the various operating costs elements.

 

(5)

 

(c)        Factors that are considered to be significant in the structure of the charter markets include mobility, ease of entry, lack of coherence and homogeneity. Explain the importance of these four factors in the structure of the charter markets and briefly discuss their similarities and/or differences in the tanker and dry bulk markets.

(10)

 

 

  1. Are the following arguments TRUE or FALSE? Provide short justifications for your answer.  You may use graphical or diagrammatic illustrations, where advantageous.

 

(a)       The lower, left-hand side part of the tanker supply curve includes small and aged vessels.

 

 

(6)

 

(b)       Spot rates fall when new tankers enter the market.

 

(6)

 

(c)       Conferences collectively respond to external competition.

 

(4)

 

 

 

(d)       Costs in the liner market are almost constant.

 

 

 

 

 

– Compulsory Question

 

  1. Consider that an oil tanker route is 10,000 nautical miles (round trip).  This route is served by three categories of oil tankers, all vessels being on the spot market.   The tankers have the following characteristics:

 

Category 1 2 3
Number of vessels 10 8 5
Payload (tonnes) 30,000 70,000 150,000
Speed (knots) 16 15 14
Time in harbour (hours) 48 72 96
Fuel consumption en route

(tonnes/day)

35 65 110
Fuel consumption in harbour

(tonnes/day)

10 20 40
Harbour dues ($/visit) 6,000 10,000 18,000
Additional cost ($ per year) 600,000 800,000 1,200,000

 

The additional cost figure covers crew and insurance cost when the vessels are on the spot market (rather than being laid up).

 

Considering that the number of round trips per year can be the larger integer possible, that the fuel price is $120 per tonne and that the basic rate on this route is $10 per tonne, determine the following:

 

(a)     Sketch the supply curve (of carrying capacity) of this route for a period of one year (Spot Rate Unit Cost, SRUC in Worldscale, WS as a function of the carrying capacity in tonne-miles).

(10) (b)    In the case that oil demand is perfectly inelastic and equal to 45 billion tonne- miles, what is the spot rate?   How many tankers will be in service and how

many tankers will be laid up?  Which is the “marginal vessel”?

(5) (c)     What would change in questions (a) and (b) above if the vessels of category (2) should withdraw from service due to the introduction of new anti-pollution

legislation?

(5)

 

Answers should include detailed calculation workings.

 

Contd./…

 

 

 

 

 

 

  1. (a)  Discuss and critically assess the major differences between the charter and liner markets, under the following four viewpoints:

 

structure of the markets;

services offered;

type of shipments; and type of vessels.

 

Structure your answer in 6 to 8 bullet points for each viewpoint.

 

(10)

 

 

 

 

 

(b)          The total costs associated with running ship can be divided into three categories. Explain these categories, indicating what cost items are usually put under them.

 

For the cases of single trip (voyage) charter, time charter and bareboat

charter, determine whose responsibility (either the owner’s or the charterer’s)

it is to cover the various cost elements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

15. (a) Explain indifference curves and illustrate the relationship between
these and budget lines by using graphs.   Show how a demand curve for
one of the goods or services concerned can be derived from these.
(10)

 

(b)     Discuss the factors affecting shipping demand and the characteristics of freight rate elasticity of shipping demand.

(6)

 

(c)    Discuss the ways by which shipping supply is modified.

 

(4)

 

 

 

 

  1. (a)  Operating speed of a ship can be optimised either to minimise the cost or maximise the profit.  Explain the ideas, highlighting the key differences between them, and discuss their strengths and weaknesses.

(8)

 

(b)     Based on the above, show how the total costs per tonne changes with the variation in fuel costs.  Illustrate the way in which the fuel cost variation influences the speed optimisation.

(6)

 

(c)    Discuss the various factors which influence fuel consumption of a ship.

 

(6)

 

 

 

 

 

 

Contd./…

 

 

 

 

Page 2 of 3

 

 

 

 

 

(a)        A shipping company approaches a bank with a view to borrow some money to put towards purchasing a ship.   Discuss what action the banker will take in order to ensure that lending the money to this shipping company for this purpose is a good business.

(10)

 

 

18. (a) A Panamax bulker burns 25 tonnes of bunkers per day at an average
loaded/ballast speed of 13 knots and 2 tonnes of diesel per day in port
and in canal.  Port charges at New Orleans are $30,000 and in Japan
$27,000.  Canal transit charges are $65,000 laden and $45,000 ballast.
The single voyage distance is 9,500 miles.  If freight is fixed at $30 per
tonne and cargo loaded is 45,000 tonnes, calculate the net cashflow for
this voyage.

 

Crew and other operating costs for the voyage are estimated at $6,000

per  day.    A  broker’s  commission  of  2.5%  is  payable  on  freight.

Assume bunkers are $200 per tonne and diesel $270 per tonne.  Port time is estimated at six days in total and one day is allowed for each Panama transit.

(12)

 

(b)        Assuming that the above voyage is typical for the whole year and the total off-hire time in port is 30 days per year, calculate the annual cashflow.  If the initial investment is $25million, and the interest rate is

5%, what is the payback period?   You may ignore any other costs including drydocking and taxes.  The value of the ship decreases by the linear  annual  depreciation  amount  for  20  years  with  zero  terminal value.

 

 

19. (a) Explain indifference curves and illustrate the relationship between
these and budget lines by using graphs.   Show how a demand curve for
one of the goods or services concerned can be derived from these.
(10)

 

(b)     Discuss the factors affecting shipping demand and the characteristics of freight rate elasticity of shipping demand.

(6)

 

(c)    Discuss the ways by which shipping supply is modified.

 

(4)

 

 

 

 

  1. (a)  Operating speed of a ship can be optimised either to minimise the cost or maximise the profit.  Explain the ideas, highlighting the key differences between them, and discuss their strengths and weaknesses.

(8)

 

 

 

 

(b)     Based on the above, show how the total costs per tonne changes with the variation in fuel costs.  Illustrate the way in which the fuel cost variation influences the speed optimisation.

(6)

 

(c)    Discuss the various factors which influence fuel consumption of a ship.

 

(6)

 

 

 

 

 

 

Contd./…

 

 

  1. (a) A shipping company approaches a bank with a view to borrow some money to put towards purchasing a ship.   Discuss what action the banker will take in order to ensure that lending the money to this shipping company for this purpose is a good business.

(10)

 

 

22. (a) A Panamax bulker burns 25 tonnes of bunkers per day at an average
loaded/ballast speed of 13 knots and 2 tonnes of diesel per day in port
and in canal.  Port charges at New Orleans are $30,000 and in Japan
$27,000.  Canal transit charges are $65,000 laden and $45,000 ballast.
The single voyage distance is 9,500 miles.  If freight is fixed at $30 per
tonne and cargo loaded is 45,000 tonnes, calculate the net cashflow for
this voyage.

 

Crew and other operating costs for the voyage are estimated at $6,000

per  day.    A  broker’s  commission  of  2.5%  is  payable  on  freight.

Assume bunkers are $200 per tonne and diesel $270 per tonne.  Port time is estimated at six days in total and one day is allowed for each Panama transit.

(12)

 

(b)        Assuming that the above voyage is typical for the whole year and the total off-hire time in port is 30 days per year, calculate the annual cashflow.  If the initial investment is $25million, and the interest rate is

5%, what is the payback period?   You may ignore any other costs including drydocking and taxes.  The value of the ship decreases by the linear  annual  depreciation  amount  for  20  years  with  zero  terminal value.

 

 

 

 

 

Page 2 of 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Leave a comment

Posted by on November 26, 2016 in academic writing, Academic Writing

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: